If you are a primary producer, you may be entitled to claim an immediate deduction for capital expenses incurred on fencing and fodder storage assets.
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The term 'fence' has the ordinary meaning. It includes an enclosure or barrier, usually made of metal or wood, around or along a field or paddock.
A fencing asset extends to parts or components of a fence including:
- anchor assemblies.
A fencing asset includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to a fence.
A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder.
A fodder storage asset includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is a fodder storage asset.
Fodder refers to food for livestock, such as grain, hay or silage. It can include liquid feed and supplements, or any feed that could fit into the ordinary meaning of fodder.
For a fodder storage asset to satisfy the 'primarily and principally for the purpose of' test, its main purpose must be to store fodder.
For example, if you built a shed for the purpose of storing hay but occasionally use it to store a neighbour's tractor, it would still meet the 'primarily and principally' test because its main purpose is to store fodder.
However, if you are a cotton farmer and you buy a silo to store seed for sowing, not for animal consumption, the silo does not meet the 'primarily and principally' test. This is because the main purpose of the silo is not to store fodder.
Similarly, if you are a grain farmer and you buy a silo to store a harvest that is designed for human consumption, the silo does not meet the 'primarily and principally' test. This is because the main purpose of the silo is not to store fodder. This is the case even if you end up using the whole harvest to feed your livestock. However, if you are a grain farmer and you grow feed grain and store it in a silo for sale to livestock producers, the silo meets the 'primarily and principally' test because the main purpose of the silo is to store fodder.
If you incur an expense for several purposes, you need to examine the primary and principal function of what is produced by incurring the expense.
For dual purpose assets with integrated, but separate, functions, the primary and principal purpose of the asset must be to store fodder. For example, if you use an asset for both storing fodder and feeding animals, the animal-feeding component must be merely incidental to the asset's primary and principal purpose of storing fodder. It will not meet the requirements of a fodder storage asset if its primary and principal purpose is for feeding animals.
Typical fodder storage assets
Typical examples of fodder storage assets include:
- liquid feed supplement storage tanks
- bins for storing dried grain
- hay sheds
- grain storage sheds
- above-ground bunkers.
Find out about:
- Deduction limits
- Who can't claim under these provisions
- Amounts you can deduct
- Recouped expense
- Second-hand assets
- If you sell an asset
Your deduction is limited to the capital expenses you incur for:
The expense must have been incurred primarily and principally for use in a primary production business conducted on land in Australia.
You can't claim a deduction for fencing and fodder storage assets under these provisions unless you're a primary producer. However, you can still claim deductions when you use fencing and fodder storage assets to produce income. You can claim a fence as capital works and fodder storage assets as either a capital work or depreciating asset.
Different rules apply for:
If you incurred a capital expense on a fencing asset:
- on or after 7.30pm AEST, 12 May 2015 – claim an immediate deduction in the income year in which you incurred the expense. This is known as the accelerated depreciation for primary producers rule. This excludes expenses related to a stockyard, pen or portable fence.
- before 7.30pm AEST, 12 May 2015 or the expense relates to a stockyard, pen or portable fence – deduct an amount for its decline in value based on its cost and effective life.
How you can claim a deduction for a capital expense on a fodder storage asset depends on when the expense was incurred:
- If the expense was incurred on or after 19 August 2018, you can immediately deduct the cost in the income year you incurred it.
- If the expense was incurred before 19 August, but the asset was first used or installed ready for use on or after 19 August 2018, you can immediately deduct the cost in the income year you incurred it. If you already claimed a partial deduction in a previous income year but the asset was not first used or installed ready for use until on or after 19 August 2018, you will need to amend the previous year's tax return to claim a deduction for the full amount in the year you incurred the expense.
- If the expense was incurred between 7.30pm AEST, 12 May 2015 and 18 August 2018, you can deduct one-third of the amount in the income year in which you incurred the expense, and one-third in each of the following two income years
- If the expense was incurred before 7.30pm AEST, 12 May 2015, you can deduct an amount for its decline in value based on its cost and effective life.
Example: immediate deduction applies
Hamish is a beef cattle farmer. In July 2018, Hamish spent $30,000 on a new grain shed to store grain to feed his cattle. The grain shed was delivered and installed ready for use in September 2018.
As the shed was ready for use after 19 August 2018, Hamish will claim the full amount in his 2018–19 tax return.End of example
Example: partial deduction already claimed
Peter has a sheep farm. In April 2017, he spent $48,000 on a new hay shed to store fodder for his sheep. The shed wasn't installed ready for use until September 2018.
Peter claimed a $16,000 deduction in his 2017 tax return (one-third of the expense). He intended claiming a further $16,000 in his 2018 and 2019 tax returns.
However, under the new law, Peter will need to amend his 2017 tax return to claim a deduction for the full cost of the hay shed in the 2017 income year.End of example
These deductions are not available to a partnership. If the costs were incurred by a partnership, a partner can only claim the deduction for their share of the expenditure.
You must reduce your deduction if the asset was not wholly used to carry on a primary production business or for a taxable purpose.
Any expense you recoup is included in your assessable income.
If your expense on fodder storage assets is deducted over three income years, special rules apply. These determine the amount of recoupment to include in your assessable income in the year of recoupment and in later income years.
If the asset is a second-hand asset, the following rules apply for:
You can't claim a deduction for the depreciation of a second-hand fencing or fodder storage asset under the primary production accelerated depreciation rules, unless you can prove that no one else has deducted (or can deduct) an amount for the asset under these rules.
- Accelerated depreciation for primary producers
Primary producers who are considered a small business entity may choose to use the small business simplified depreciation rules to claim a deduction for a second-hand fencing asset or fodder storage asset.
If you aren't a small business entity and believe you are eligible to claim for second-hand items, including components in otherwise new items, you should apply for a private ruling.
If you aren't eligible to claim a deduction for the second-hand asset under either the primary production or small business rules, you can't claim a deduction for the asset at all.
- Work out if you are a small business entity
- Small business simplified depreciation rules
- Private ruling
If you sell an asset, you can claim a deduction for under the primary production accelerated depreciation rules, and the buyer uses the asset wholly to produce assessable income, you can continue to claim the deduction. This includes any deduction you would be entitled to claim in subsequent years.
However, if the buyer does not use the asset to produce assessable income you must apportion your deduction. Examples would include where the buyer uses the asset on a hobby farm or for domestic purposes or if you sell it to a dealer.
Proceeds of the sale
If you sell an asset for which you have deducted (or can deduct) an amount under the primary production accelerated depreciation rules, the proceeds of the sale are assessable as a capital gain.
The cost base of the asset for capital gains tax purposes does not include any amount that you deducted (or can deduct) under those rules.
See also:Primary producers can claim an immediate deduction for capital expenses on fencing and fodder storage assets.