You can claim a deduction for the decline in value of horticultural plants, provided:
- you own the plants – lessees and licensees of land are treated as if they own the horticultural plants on that land
- you use them or held ready for use in a business of horticulture to produce assessable income
- the total amount of the deductions does not exceed the amount of capital expenditure incurred on the plant
These deductions are not available to a partnership. Costs incurred by a partnership in establishing horticultural plants are deductible by each partner who can then apportion their share of the expenditure.
Capital expenditure
Your deduction for the decline in value of horticultural plants is based on the capital expenditure incurred in establishing the plants. This deduction does not include the cost of purchasing or leasing land, or expenditure on draining swamp or low-lying land or on clearing the land.
It would include, for example:
- the costs of acquiring and planting the seeds
- part of the cost of ploughing, contouring, fertilising, stone removal and topsoil enhancement relating to the planting.
If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value.
If you incur expenses on revenue account to establish horticultural plants, you can claim immediate deduction under general deduction provision.
For more information, see:
- Calculating the decline in value of grapevines
- Guide to depreciating assets
- Taxation Determination TD 2006/46 Income tax: what amounts are included in 'establishment expenditure' for the purposes of working out the decline in value of a horticultural plant under section 40-545 of the Income Tax Assessment Act 1997?
Effective life
The period over which you can deduct the expenditure depends on the effective life of the horticultural plant. You can choose to work out the effective life yourself or you can use the effective life we have determined.
If the effective life of the plants is less than 3 years, you can claim the establishment costs in full, generally in the year in which the products or parts of the plant are first able to be harvested and sold commercially (first commercial season). If another person acquires the plant in the following year, no further decline in value of the plant can be claimed.
If the effective life of the plants is 3 or more years, you can write off the establishment costs over the maximum write-off period, which generally commences at the start of what is expected to be the plants’ first commercial season. If the plants are destroyed before the end of their effective life, you are allowed a deduction in that year for the remaining unclaimed expenses less any proceeds – for example, insurance.
For more information, see TR 2022/1 Income tax: effective life of depreciating assets (applicable from 1 July 2022).
|
Plants with effective life of 3 or more years |
Annual write-off rate |
Maximum write-off period |
|---|---|---|
|
3 to less than 5 years |
40% |
2 years and 183 days |
|
5 to less than 6 and two-third years |
27% |
3 years and 257 days |
|
6 and two-third to less than 10 years |
20% |
5 years |
|
10 to less than 13 years |
17% |
5 years and 323 days |
|
13 to less than 30 years |
13% |
7 years and 253 days |
|
30 years or more |
7% |
14 years and 105 days |
Change in ownership
If the effective life of the plants is 3 or more years, when ownership of the horticultural plants changes, the new owner is entitled to continue claiming the balance of capital expenditure incurred on establishing the plants on the same basis.
Small business entities
If you are a primary producer and a small business entity, you must use the uniform capital allowance rules to work out your deductions for horticultural plants.
Recouped expenditure
Any expenditure recouped is assessable income. Where the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and later income years.