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Capital expenditure deductible under the UCA

Last updated 26 August 2007

Horticultural plants

A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts.

You can claim a deduction for the decline in value of horticultural plants, provided:

  • you owned the plants - lessees and licensees of land are treated as if they own the horticultural plants on that land
  • you used them in a business of horticulture to produce assessable income, and
  • the expense was incurred after 9 May 1995.

Your deduction for the decline in value of horticultural plants is based on the capital expenditure incurred on establishing the plants. This does not include the cost of purchasing or leasing land or expenditure in draining swamp or low-lying land or in clearing land. It would include, for example:

  • the costs of acquiring and planting seeds, and
  • part of the cost of ploughing, contouring, fertilising, stone removal and topsoil enhancement relating to the planting.

You cannot claim this deduction for forestry plants.

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 period over which you can deduct the expenditure depends on the effective life of the horticultural plant. You can choose to work out the effective life yourself or you can use the effective life determined by the Commissioner which is listed in Taxation Ruling TR 2006/15, Taxation Ruling TR 2006/5 or one of the schedules of Taxation Ruling TR 2000/18.

If the effective life of the plant is less than three years, you can claim the establishment expenditure in full generally in the year in which the first commercial season starts.

If the effective life of the plant is three or more years, you can write off the establishment expenditure over the maximum write-off period, which generally commences at the start of what is expected to be the plant's first commercial season.

If the plant is destroyed before the end of its effective life, you are allowed a deduction in that year for the remaining unclaimed establishment costs less any proceeds - for example, insurance.

Plants with an effective life of three or more years

Effective life

Annual write-off rate

Maximum write-off period

3 to less than 5 years

40%

2 years and 183 days

5 to less than 6 2/3 years

27%

3 years and 257 days

6 2/3 to less than 10 years

20%

5 years

10 to less than 13 years

17%

5 years and 323 days

13 to less than 30 years

13%

7 years and 253 days

30 years or more

7%

14 years and 105 days

Where ownership of the horticultural plants changes, the new owner is entitled to continue claiming the balance of capital expenditure incurred on establishing the plants on the same basis.

If you are a primary producer and an STS taxpayer, you must use the UCA rules to work out your deductions for horticultural plants. For more information about STS taxpayers, see STS taxpayers.

You may need to include a recoupment of expenditure on horticultural plants in your assessable income. As the expenditure may be 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 horticultural plant for its market value is not regarded as an assessable recoupment.

Grapevines

Note: The specific rules for working out the decline in value of grapevines only apply to grapevines that are planted and first used by you in a primary production business before 1 October 2004. If a grapevine is planted and first used by you in a primary production business on or after 1 October 2004, the decline in value of the grapevine is worked out under the provisions relating to horticultural plants - see Horticultural plants.

The decline in value of a grapevine is worked out at a rate of 25%, provided:

  • you own the grapevine, or
  • the grapevine is established on Crown land you hold under a lease and is used in a primary production business.

If you are not entitled to work out your deduction for decline in value under the provisions relating to grapevines because these conditions are not met, a deduction may be available for decline in value under the provisions relating to horticultural plants - see Horticultural plants.

Your deduction for the decline in value of grapevines is based on the capital expenditure incurred on establishing the grapevines. Capital expenditure incurred on establishing grapevines does not include the cost of purchasing or leasing land or expenditure in draining swamp or low-lying land or in clearing land but it does include, for example, the cost of:

  • preparing the land - ploughing and topsoil enhancement
  • planting the vine itself, and
  • the vine.

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.

You start to deduct the decline in value of grapevines from the time you first use the grapevines in a primary production business to produce assessable income. If ownership of the grapevines changes, the remaining deduction is available to the new owner while they use the grapevines in a primary production business.

If a grapevine is destroyed before the end of the write-off period, you are allowed a deduction in the year of destruction for the remaining unclaimed establishment expenditure less any proceeds - for example, insurance.

If you are a primary producer and an STS taxpayer, you must use the UCA rules to work out your deductions for grapevines. For more information about STS taxpayers, see STS taxpayers.

A recoupment of expenditure on grapevines may be 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 grapevine for its market value is not regarded as an assessable recoupment.

The UCA maintains the pre 1 July 2001 treatment of some capital expenditure and allows deductions for some capital expenditure that did not previously attract a deduction. Most of these deductions are only available if the expenditure does not form part of the cost of a depreciating asset.

The following types of capital expenditure are deductible under the UCA:

Generally, to work out your deductions you need to reduce the expenditure by the amount of any GST input tax credits you are entitled to claim in relation to the expenditure.

Increasing or decreasing adjustments that relate to the expenditure may be allowed as a deduction or included in assessable income, respectively. Special rules apply to input tax credits on expenditure allocated to a project pool - see Project pools. STS taxpayers (except primary producers) may deduct capital expenditure under these UCA rules only if the expenditure is not part of the cost of a depreciating asset.

Primary producers who are STS taxpayers can choose to deduct certain depreciating assets under the UCA rules - see STS taxpayers.

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