• Water facilities

    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.

    Find out about:

    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.

    Recouped expenditure

    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.

    Second-hand assets

    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.

    See also:

    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.

    Definitions

    Irrigation water provider

    An irrigation water provider primarily and principally supply (other than by using a motor vehicle) water to primary producers.

    Water facility

    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:

    • dams
    • earth tanks
    • underground tanks
    • concrete or metal tanks
    • tank stands
    • bores
    • wells
    • irrigation channels or similar improvements
    • pipes
    • pumps
    • water towers
    • windmills
    • extensions or improvements to any of these items.

    Things that are reasonably incidental to conserving or conveying water include:

    • a culvert
    • a fence to prevent livestock entering an irrigation channel
    • a bridge over an irrigation channel.
      Last modified: 29 Sep 2016QC 17794