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  • Drought investment allowance

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    The drought investment allowance provides for a deduction of 10 per cent of capital expenditure incurred on buying or building new items of drought mitigation property to be used wholly and exclusively in Australia for producing assessable primary production income. The expenditure on each item must be at least $3,000 and it must have been incurred or the construction commenced after 23 March 1995 and before 1 July 2000. The deductions, which are limited to $5,000 for any one year, are allowable for the income year when the item is first used or installed ready for use and this must be before 1 July 2001. The deductions is generally, available in addition to other deductions allowable in respect of the expenditure. It can be lost or reduced

    • if the item or an interest in it is disposed of
    • if the item is lost or destroyed or
    • if the right to use it is transferred to another entity.

    Drought mitigation property is:

    • a fodder storage facility-that is, a building or other structure used exclusively to store grain, hay or fodder
    • a water storage facility-that is, a dam, earth tank, underground tank or above-ground tank or a base, stand or cover for such a tank or any other structure or improvement used under an approved water conservation plan in relation to land to store water predominantly for livestock.
    • a water transport facility-that is, a bore or well, a pump or windmill, a pipe, a water tower or header tank or any other structure or improvement used under an approved water conservation plan in relation to land to transport water
    • minimum tillage equipment-for example, trash tillage implements, boom sprays and markers, zero and reduced tillage planters, trash seeders, deep ploughs and seed drills-used in planting and cultivation that involves no tillage of the soil or the tillage does not seriously affect soil structure and retains a high degree of organic matter or surface cover.

    if the capital expenditure is recouped, as provided in Subdivision 20-A of the ITAA 1997, an amount limited by the amount of the deduction is assessable. If the recoupment amount is assessable under another provision of the income tax law, Subdivision 20-A does not apply.

    Leasing companies that lease drought mitigation property to primary producers may qualify for drought investment allowance. Amongst other requirements, the lessee must use the drought mitigation property only in Australia to produce assessable primary production income and the lease term must be for at least 4 years. The leasing company deduction is limited to $5000 per item. The leasing company can transfer its deduction for drought mitigation property to a primary producer lessee provided certain criteria are met.

    Last modified: 28 Oct 2003QC 27383