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  • Landcare operations and deduction for decline in value of water facility, fencing asset and fodder storage asset

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    Landcare operations expenses

    You can claim a deduction for capital expenditure you incur on a landcare operation for land in Australia in the year it is incurred.

    If the water facilities and landcare operation rules both apply, you can only deduct the expenditure as expenditure on a water facility; see Water conservation and conveyance facilities. If the carbon sink forest and landcare operation rules both apply, you can only deduct the expenditure as expenditure on carbon sink forests.

    Unless you are a rural land irrigation water provider, the deduction is available if you use the land for either:

    • a primary production business, or
    • in the case of rural land, a business for the purpose of producing assessable income from the use of that land, except a business of mining or quarrying.

    However your deduction is reduced by a reasonable amount to reflect your use of the land other than for the purpose of carrying on the relevant business in an income year after you incurred the expenditure.

    You may claim the deduction even if you are only a lessee of the land.

    Rural land irrigation water providers can claim a deduction for certain expenditure they incur. A rural land irrigation water provider is an entity whose business is primarily and principally supplying water to entities for use in primary production businesses on land in Australia or businesses (except mining or quarrying businesses) using rural land in Australia. The supply of water by using a motor vehicle is excluded.

    If you are a rural land irrigation water provider, you can claim a deduction for capital expenditure you incurred on a landcare operation for land used by other entities that you supply with water if the land is:

    • land in Australia that those entities use at the time for primary production businesses, or
    • rural land in Australia that those entities use at the time for carrying on businesses for a taxable purpose, except a business of mining or quarrying.

    If you are a rural land irrigation water provider your deduction is reduced by a reasonable amount to reflect an entity’s use of the land for other than a taxable purpose in an income year after you incurred the expenditure.

    A landcare operation is one of the following:

    • erecting fences to separate different land classes in accordance with an approved land management plan
    • erecting fences primarily and principally to keep animals out of areas affected by land degradation in order to prevent or limit further damage and assist in reclaiming the areas
    • constructing a levee or similar improvements
    • constructing drainage works, other than the draining of swamps or low-lying land, primarily and principally to control salinity or assist in drainage control
    • an operation primarily and principally for eradicating or exterminating animal pests from the land
    • an operation primarily and principally for eradicating, exterminating or destroying plant growth detrimental to the land
    • an operation primarily and principally for preventing or fighting land degradation other than by erecting fences, or
    • an extension, alteration or addition to any of the assets described in 1 to 4 above or an extension of an operation described in 5 to 7 above.

    A landcare operation also includes:

    • a repair of a capital nature to an asset described in 1 to 4 above
    • constructing a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation
    • a repair of a capital nature, or an alteration, addition or extension to a structural improvement that is reasonably incidental to levees (or similar improvements) or drainage works deductible as capital expenditure on a landcare operation.

    An example of a structural improvement that may be reasonably incidental to drainage works is a fence constructed to prevent livestock entering a drain that was constructed to control salinity.

    No deduction is available if the capital expenditure is on plant unless it is on certain fences, dams or other structural improvements.

    If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

    These deductions are not available to a partnership. Expenses for landcare operations incurred by a partnership are allocated to each partner, who can then claim the relevant deduction for their share of the expenditure.

    You may need to show any recoupment of the expenditure as assessable income either at Other business income or Income reconciliation adjustments.

    For further information, see Guide to depreciating assets or phone 13 28 66.

    Water conservation and conveyance facilities

    You can claim a deduction for the decline in value of a water facility. A water facility includes plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water.

    Water facility includes dams, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills. Water facility also includes certain other expenditure incurred on or after 1 July 2004 for:

    • a repair of a capital nature to plant or a structural improvement that is primarily or principally for the purpose of conserving or conveying water, for example, if you purchase a pump that needs substantial work done to it before it can be used in your business, the cost of repairing the pump may be treated as a water facility
    • a structural improvement, or an alteration, addition or extension to a structural improvement that is reasonably incidental to conserving or conveying water
    • a repair of a capital nature to a structural improvement that is reasonably incidental to conserving or conveying water.

    Examples of structural improvements that are reasonably incidental to conserving or conveying water include a bridge over an irrigation channel, a culvert (a length of pipe or multiple pipes that are laid under a road to allow the flow of water in a channel to pass under the road), or a fence preventing livestock entering an irrigation channel.

    If you incurred the expenditure from 7.30pm (AEST), 12 May 2015 you claim the full amount in the year you incurred it. If you incurred the expenditure before this time, you deduct one-third of the amount in the income year in which you incurred it, and one-third in each of the following two years.

    Unless you are an irrigation water provider, the expenditure must be incurred primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the facility is not wholly used for either:

    • carrying on a primary production business on land in Australia, or
    • a taxable purpose, for example, producing assessable income.

    Irrigation water providers are entitled to a deduction for water facilities expenditure incurred on or after 1 July 2004. An irrigation water provider is an entity whose business is primarily and principally the supply of water to entities for use in primary production businesses on land in Australia. The supply of water by using a motor vehicle is excluded.

    If you are an irrigation water provider, you must incur the expenditure primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia (being entities supplied with water by you). The deduction is reduced if the facility is not used wholly for a taxable purpose.

    If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

    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 who can then claim the relevant deduction for their share of the expenditure.

    You may need to show any recoupment of the expenditure as assessable income either at Other business income or Income reconciliation adjustments. For further information, see Guide to depreciating assets or phone 13 28 66.

    Fencing assets

    You can claim a deduction for the decline in value of a fencing asset. A fencing asset includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension to a fence.

    If you incurred the expenditure from 7.30pm (AEST), 12 May 2015 you claim the full amount in the year you incurred it. If you incurred the expenditure before this time (or if the expenditure relates to a stockyard, pen or portable fence), the previous decline in value rules that apply to fences based on their effective life continue to apply.

    The expenditure must be incurred by you on the construction, manufacture, installation or acquisition of a fencing asset that is used primarily and principally in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the fencing asset is not wholly used for either:

    • carrying on a primary production business on land in Australia, or
    • a taxable purpose, for example, producing assessable income.

    If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

    These deductions are not available to a partnership. Costs incurred by a partnership on fencing assets are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.

    You may need to show any recoupment of the expenditure as assessable income either at Other business income or Income reconciliation adjustment. For further information, see Guide to depreciating assets or phone 13 28 66.

    Fodder storage assets

    You can claim a deduction for the decline in value of a fodder storage asset. A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder. It includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is primarily and principally for the purpose of storing fodder.

    Fodder refers to food for livestock, usually but not exclusively dried, such as grain, hay or silage. Fodder can include liquid feed and supplements. Examples of typical fodder storage assets include:

    • silos
    • liquid feed supplement storage tanks
    • bins for storing dried grain
    • hay sheds
    • grain storage sheds
    • above-ground bunkers.

    If you incurred the expenditure from 7.30pm (AEST), 12 May 2015 you deduct one-third of the amount in the income year in which you incurred it, and one-third in each of the following two years. If you incurred the expenditure before this time, the previous decline in value rules that apply to fodder storage assets based on their effective life continue to apply.

    The expenditure must be incurred by you on the construction, manufacture, installation or acquisition of a fodder storage asset that is used primarily and principally in a primary production business you conduct on land in Australia. You may claim the deduction even when you do not own the land. Therefore, if you are a lessee carrying on a business of primary production on the land, you can still claim the deduction. Your deduction is reduced where the fodder storage asset is not wholly used for either:

    • carrying on a primary production business on land in Australia, or
    • a taxable purpose, for example, producing assessable income.

    If the expenditure incurred arose from a non-arm’s length dealing and was more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.

    These deductions are not available to a partnership. Costs incurred by a partnership on fodder storage assets are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.

    You may need to show any recoupment of the expenditure as assessable income either at Other business income or Income reconciliation adjustments. For further information, see Guide to depreciating assets or phone 13 28 66.

    Small business entities

    Small businesses are able to claim an immediate deduction for assets they start to use, or have installed ready for use for a taxable purpose, provided each depreciable asset costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.

    This measure applies to expenditure incurred from 7.30pm (AEST) 12 May 2015 and will end on 30 June 2018.

    The amount you show here must not include any amount relating to a depreciating asset used in your primary production business if you have chosen to claim a deduction for it under the small business entity depreciation rules.

      Last modified: 28 Jun 2018QC 55562