Capital expenditure incurred on water storage and farm reticulation systems is deductible if incurred primarily and principally in carrying on a primary production business on land in Australia. The deduction can be claimed in equal instalments over 3 years. Items include dams, earth tanks, underground tanks, concrete or metal tanks, tank stands, bores, wells, irrigation channels or similar improvements, pipes, pumps, water towers, windmills and extensions or improvements to any of these items. The cost of constructing a power line from an existing mains electricity connection to any plant used for conserving or conveying water is also included.
If you are carrying on a business of primary production on the land you may claim the deduction even if you are a lessee.
The deduction for facilities to conserve or convey water is reduced where the facility is not used wholly for either:
- carrying on a primary production business on land in Australia or
- for the purpose of producing assessable income.
A recoupment of the deductible expenditure is assessable under Subdivision 20-A of ITAA 1997. As the expenditure on water facilities is deductible over 3 income years, special rules apply to determine the amount of any recoupment to be included in assessable income. If the recoupment is assessable under another provision of the income tax law, Subdivision 20-A does not apply. For further information, ring the landcare hotline on 1800 060 425.
These deductions are not available to a partnership. Costs incurred by a partnership for facilities to conserve or convey water are allocated to each partner and deducted from the partner's income.