Part C: Business deduction for project pool

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Did you have capital expenditure directly connected with a business project?

You need to know

Certain capital expenditure you incurred after 30 June 2001 which is directly connected with a project you carry on or propose to carry on for a taxable purpose can be allocated to a project pool and written off over the life of the project.

A project is carried on if it involves a continuity of activity and active participation. Merely holding a passive investment such as a rental property would not be regarded as carrying on a project.

Such capital expenditure, known as a project amount, is expenditure incurred on:

• creating or upgrading community infrastructure for a community associated with the project - this expenditure must be paid (not just incurred) to be a project amount
• site preparation for depreciating assets (other than to drain swamp or low-lying land or to clear land for horticultural plants and grapevines)
• feasibility studies for the project
• environmental assessments for the project
• obtaining information associated with the project
• seeking to obtain a right to intellectual property
• ornamental trees or shrubs.

Project amounts also include mining capital expenditure and expenditure on certain facilities used to transport minerals or quarry materials. For more information on these project amounts, refer to the publication Guide to depreciating assets 2003–04 (NAT 1996–6.2004).

The expenditure must not be otherwise deductible or form part of the cost of a depreciating asset.

Project amounts are allocated to a 'project pool'. Your deduction for project amounts allocated to a project pool is spread over the 'project life'. The project life is the period from when the project will start to operate until when it will stop operating. The period must be limited by something inherent in the project. A deduction for project amounts would be available over that limited project life (or an earlier abandonment, sale or other disposal). If there is no limited project life, no deduction is available under these rules.

A deduction is available for the 2003–04 income year if you started to operate a project in that year to gain or produce assessable income. The deduction is worked out on the value of the project pool at the end of 2003–04. Use the worksheet below to work out your deduction.

Worksheet

Note: Your deduction at d must not be more than the amount at a.

If a project operated in 2003–04 for purposes other than earning assessable business income, your deduction at d must be reduced by a reasonable amount for the extent to which the project operated for such purposes.

The pool value can be subject to adjustments. An adjustment could happen under new rules that apply to transactions conducted in foreign currency. If during the income year you met an obligation to pay foreign currency incurred as a project amount which you allocated to a project pool, you might have derived a gain or incurred a loss under these rules. For more information about the new rules, visit the Tax Office website at www.ato.gov.au

Closing pool value for 2003–04

This is amount a less amount d in the worksheet above. You will need the closing pool value for 2003–04 to work out your deduction for the project pool next year.

Any recoupment of the expenditure must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in reconciliation items item P8 on your schedule.

Where a project is abandoned, sold or otherwise disposed of in 2003–04

In this case - whether or not the project had begun to operate - you can claim a deduction for the 2002–03 closing pool value (if any) plus any project amounts allocated to the pool in the 2003–04 year. Any proceeds from the abandonment, sale or disposal of the project must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in reconciliation items item P8 on your schedule.

Note

If you have included an amount greater than $1,000 at L, you will need to complete and attach a Capital allowances schedule 2004 unless you are eligible to enter or continue in the STS and have chosen to do so at item S1. For more information, refer to the publication Capital allowances schedule 2003–04 and instructions.