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  • Project pools

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

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    Under the UCA, certain capital expenditure 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 project life.

    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.

    The capital expenditure is known as a project amount and is expenditure incurred:

    • to create or upgrade community infrastructure for a community associated with the project - this expenditure must be paid (not just incurred) to be a project amount
    • for site preparation costs for depreciating assets (other than in draining swamp or low-lying land or in clearing land for horticultural plants including grapevines)
    • for feasibility studies or environmental assessments for the project to obtain information associated with the project
    • in seeking to obtain a right to intellectual property
    • for ornamental trees or shrubs.

    Mining capital expenditure and transport capital expenditure - see Mining and quarrying and minerals transport - can also be a project amount which can be allocated to a project pool and for which a deduction is available.

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

    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.

    The deduction for project amounts allocated to a project pool commences when the project starts to operate and is calculated as follows:

    (Pool value × 150%) ÷ DV project pool life

    The pool value for an income year is, broadly, the sum of the project amounts allocated to the pool up to the end of that year less the sum of the deductions you have claimed for the pool in previous years or could have claimed had the project operated wholly for a taxable purpose.

    The pool value can be subject to adjustments.

    If you are entitled to claim a GST input tax credit for expenditure allocated to a project pool, the pool value in the income year in which you are, or become, entitled to the credit is reduced by the amount of the credit. Certain increasing or decreasing adjustments in relation to expenditure allocated to a project pool may also affect the pool value.

    If during any income year commencing on or after 1 July 2003 you paid or ceased to have to pay foreign currency incurred as a project amount allocated to a project pool, a foreign currency gain or loss (referred to as a forex realisation gain or loss) may have arisen under new forex provisions. If the amount was incurred after 30 June 2003 (or earlier, if you so elected) and became due for payment within 12 months after you incurred it then unless you elected otherwise the pool value for the income year you incurred the amount is adjusted by the amount of any forex realisation gain or loss. Otherwise the loss is deductible and any gain is included in assessable income.

    The DV project poollife is the project life or, if that life has been recalculated, the most recently recalculated project life.

    The project life is worked out by estimating how long (in years and fractions of years) it will be from when the project starts to operate until it stops operating. Generally, a project starts to operate when you start the activities that will produce assessable income. You estimate the project life from your perspective but the event used to determine when the project will stop operating must be something outside your control.

    There is no need to apportion the deduction if the project starts to operate during the income year or for project amounts incurred during the income year.

    The deduction is reduced to the extent to which the project is operated for other than a taxable purpose during the income year.

    If the project is abandoned, sold or otherwise disposed of in the income year, you can deduct the sum of the closing pool value of the prior income year plus any project amounts allocated to the pool during the income year, after allowing for any necessary pool value adjustments. A project is abandoned if it stops operating and will not operate again.

    Your assessable income will include any amount received for the abandonment, sale or other disposal of a project.

    If you recoup an amount of expenditure allocated to a project pool or if you derive a capital amount in relation to a project amount or something on which a project amount was expended, the amount must be included in assessable income.

    If any receipt arises from a non-arm's length dealing and the amount is less than the market value of what it was for, the amount received is taken to be that market value.

    Last modified: 31 Oct 2005QC 27521