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A water facility is plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water. The expenditure must be incurred by you primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even if you are only a lessee of the land.
You can claim a deduction for the decline in value of a water facility in equal instalments over three income years.
Examples of a water facility are dams, earth tanks, underground tanks, concrete or metal tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers, windmills and extensions or improvements to any of these items.
Your deduction is reduced where the water facility is not wholly used for either:
- carrying on a primary production business on land in Australia, or
- a taxable purpose.
If the expenditure incurred arises from a non-arm's length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.
No deduction is available for capital expenditure incurred on acquiring a second-hand commercial water facility unless you can show that no one else has deducted or could deduct an amount for earlier capital expenditure on the construction or previous acquisition of the water facility.
If you are a primary producer and an STS taxpayer, you can choose to work out your deductions for water facilities under either the STS capital allowance rules or the UCA rules. For more information about STS taxpayers, see STS taxpayers.
A recoupment of expenditure on water facilities may be included in your assessable income. As the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and in later income years. An amount received for the sale of a water facility for its market value is not regarded as an assessable recoupment.
Last modified: 31 Oct 2005QC 27521