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  • Choices of tax treatment available

    You can choose to apply one of the following tax provisions:

    The table below shows you the impact these choices will have on your payments.

    Type of payment and ordinary or NANE income provisions

    Type of payment

    Ordinary income provisions

    NANE income provisions

    Payment to acquire water right

    Include payments attributed to the acquisition of the water right as capital proceeds.

    This may give rise to a capital gain or loss.

    If your asset was acquired before 20 September 1985, your asset is exempt from capital gains tax. This means you disregard any capital gain or loss.

    Disregard any capital gain or loss that is related to the eligible payment.

    Payment to fund infrastructure improvement

    The payment is considered a subsidy and must be included in your assessable income.

    Some expenditure can be claimed as a general deduction in the year it is incurred.

    You may deduct expenditure for water infrastructure improvements over a period of time. See Water facilities for more information.

    All eligible payments are NANE income. This means that you exclude the eligible payment when you are working out your taxable income and losses.

    You cannot claim any deductions for expenditure matched, or reasonably expected to be matched, to the eligible payment.

    Do not include SRWUIP expenditure when working out your:

    This does not apply to things like legal fees to action a transfer of water rights, or interest on money borrowed to undertake improvements, as these expenses are not reasonably matched.

    When to make a choice about tax treatment

    You make your choice about tax treatment when you complete your tax return.

    Once you have made your choice, you cannot change it. Your choice will apply to all eligible payments you have already received and any you may receive in the future. You need to consider the impact on all the income tax returns affected by your choice.

    The choice can only be applied to eligible payments made on or after 1 April 2010. It will not apply to either of the following:

    • indirect payments matched to an eligible payment made before 1 April 2010, even if the indirect payment was made on or after that date
    • expenditure incurred on or after 1 April 2010 which is matched to an eligible payment made before 1 April 2010.

    You must keep evidence of your choice for five years.

    Associated entities and tax treatment

    You and your associated entities must apply the same choice.

    If the entity you are associated with chooses to treat an eligible payment as NANE income, and you incur expenditure matched to that eligible payment, you cannot claim deductions for the expenditure even though you did not receive the payment.

    Example: Trust and NANE provisions

    Tom is a sole trader and operates a market garden. The land and water rights are owned by the LDP Trust. Tom and his family are beneficiaries of the LDP Trust so they are associates of the trust.

    The LDP Trust receives an eligible payment of $100,000 to spend on water infrastructure improvements. The trust arranges for Tom to undertake the improvements and lends him the $100,000 to do this work. The LDP Trust makes a choice to treat the eligible payment as NANE income.

    The improvements undertaken by Tom will satisfy the LDP Trust's obligations, but the trust will not have incurred expenditure as the loan Tom received from the trust has to be repaid.

    If the LDP Trust chooses to apply the NANE income provisions, Tom must make the same choice. This means he cannot deduct expenditure related to the eligible payment.

    End of example

    See also:

      Last modified: 24 Aug 2016QC 36097