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AUS: Business tax changes will boost bandwidth

'The Government's business tax reform should expand Australian access to a key building block of the information economy - international telecommunications cable capacity,' the Minister for Communications, Information Technology and the Arts, Senator Richard Alston, said today.

'The Government has decided that Australian telecommunications carriers should be entitled to a tax depreciation deduction in respect of their ownership of "indefeasible rights of use" of submarine cable systems. This change will encourage telecommunications carriers to invest in international cable capacity.

'The decision builds on the Government's broader strategies to ensure Australia captures its share of vast benefits presented by the online world, including the National Bandwidth Inquiry and the information economy strategic framework.'

An indefeasible right of use (IRU) is an arrangement whereby a carrier that is not a member of the original consortium that established a submarine cable system is able to obtain the right to use the system. The lump sum payment that is often required to be paid up-front for an IRU can run into tens of millions of dollars, but no depreciation deduction is allowed under current tax law. Depreciation is, however, an allowable taxation deduction for the original members of the consortium that own the cable.

The only tax benefit available to the holder of an IRU is that deriving from the capital loss when the IRU is disposed of at the end of the effective life of the cable system.

This has led to unequal treatment of, on the one hand, the limited number of carriers who have been able to enter into ownership arrangements in respect of the various international submarine cable systems and, on the other hand, those new carriers who have been forced to acquire IRUs in order to use these systems.

It has also meant that telecommunications carriers which are residents of Australia have been disadvantaged in relation to overseas carriers, as depreciation deductions have been allowed for IRUs in a number of countries, including New Zealand, the US, Canada and Japan.

'The Government's decision announced today will remove this disadvantage,' Senator Alston said.

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