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  • Drought investment allowance

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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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    Note

    The drought investment allowance is not available where the expenditure was incurred or construction commenced after 30 June 2000.

    The drought investment allowance provided a one-off deduction of 10 per cent of capital expenditure incurred in 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 have been 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 have been before 1 July 2001. In many cases the deduction is available in addition to other deductions allowable in respect of the expenditure.

    The deduction can be lost or reduced if, within 12 months:

    • the item is used outside Australia or for a purpose other than producing assessable primary production income
    • the item or an interest in it is disposed of
    • the item is lost or destroyed, or
    • the right to use the item is transferred to another entity. The deduction can also be lost where the item is disposed of, or the right to use it is transferred, after 12 months and it was bought or built with the intention of disposing of it or transferring the right to use it.

    An amount may be assessable to a partner if that partner disposes of an interest in the partnership or in the item within 12 months, or if there is a later disposal and at the time the item was bought or built there was an intention to dispose of the interest.

    Drought mitigation property is:

    • a fodder storage facility-a building or other structure used exclusively to store grain, hay or fodder
    • a water storage facility-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-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 in which the tillage does not seriously affect soil structure and retains a high degree of organic matter or surface cover.

    Any recoupment of the expenditure would be assessable income. In working out the assessable recoupment, you are treated as having received only 10 per cent of the amount recouped where the drought investment allowance is the only deduction available for the expenditure.

    Leasing companies that lease drought mitigation property to primary producers could 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 $5,000 per item. The leasing company could transfer its deduction for drought mitigation property to a primary producer lessee provided certain criteria are met.

    Last modified: 28 Oct 2003QC 27421