You may be entitled to claim a deduction for capital expenditure incurred on a water facility if you are:
- a primary producer
- an irrigation water provider – for expenditure incurred on or after 1 July 2004.
If you are an irrigation water provider, your expenditure must have been incurred primarily and principally for the purpose of conserving or conveying water for use in primary production businesses. The deduction must be reduced to reflect any time when the facility was not wholly used for a taxable purpose.
Costs incurred by a partnership are allocated to each partner, who can then claim the relevant deduction in respect of their share of the expenditure.
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Your deduction amount
If you incurred capital expenditure on a water facility from 7.30pm (AEST), 12 May 2015 – you deduct the whole amount in the income year in which you incurred the expenditure.
If you incurred capital expenditure on a water facility before 7.30pm (AEST), 12 May 2015 – you deduct one-third of the amount in the income year in which you incurred the expenditure. You deduct one-third in each of the following two years.
You must reduce your deduction if the water facility was not wholly for a taxable purpose.
Any recoupment of your expenditure is included in your assessable income. If the expenditure on water facilities is deductible over three income years, special rules apply. These determine the amount of any recoupment to include in your assessable income in the year of recoupment and in later income years.
Rules apply on second-hand assets for depreciation and claiming under other provisions.
Depreciating second-hand water facilities
You can only claim a deduction under the primary production rules that apply to water facilities if no-one else has deducted, or can deduct, an amount for the asset under these rules.
This means that you generally can't claim a deduction for a second-hand water facility. That is unless you can prove that no one else has deducted (or can deduct) an amount for the asset under these rules.
Claiming under other provisions
Primary producers who are considered a small business entity may choose to use the small business simplified depreciation rules to claim a deduction for a second-hand water facility.
If you are not a small business entity and believe you are eligible to claim for second-hand items (including components in otherwise new items), you should apply for a private ruling.
If you aren't eligible to claim a deduction for the second-hand water facility under the primary production or small business rules, you can't claim a deduction for the asset at all.
When you sell an asset
If you sell an asset for which you can claim a deduction under the primary production accelerated depreciation rules, you can continue to claim the deduction. This is if the buyer uses the asset wholly to produce assessable income. This includes any deduction you would be entitled to claim in subsequent years.
You must apportion your deduction if the buyer does not use the asset to produce assessable income. For example, if it is used in a hobby farm or for domestic purposes or if you sell it to a dealer.
When the proceeds are assessable
If you sell an asset for which you have deducted (or can deduct) an amount under the primary production accelerated depreciation rules, the proceeds of the sale are assessable as a capital gain.
The cost base of the asset for capital gains tax purposes does not include any amount that you deducted (or can deduct) under those rules.
Irrigation water provider
An irrigation water provider primarily and principally supply (other than by using a motor vehicle) water to primary producers.
A water facility is plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water.
For expenditure incurred on or after 1 July 2004, a water facility also includes:
- capital repairs to plant or structural improvements that are primarily for the purpose of conserving or conveying water
- a structural improvement, or an alteration, addition, extension or capital repair to a structural improvement that is reasonably incidental to conserving or conveying water.
Water facilities include:
- earth tanks
- underground tanks
- concrete or metal tanks
- tank stands
- irrigation channels or similar improvements
- water towers
- extensions or improvements to any of these items.
Things that are reasonably incidental to conserving or conveying water include:
The water facilities tax concession can be claimed by primary producers and irrigation water providers. An irrigation water provider is an entity whose business is primarily the supply (other than by using a motor vehicle) of water to primary producers.
- a culvert
- a fence to prevent livestock entering an irrigation channel
- a bridge over an irrigation channel.