You can claim a deduction in the year you incur capital expenditure on a landcare operation for land in Australia.
Unless you are a rural land irrigation water provider, the deduction is available to the extent you use the land for either:
- a primary production business, or
- in the case of rural land, carrying on a business for a taxable purpose from the use of that land - except a business of mining or quarrying.
You may claim the deduction even if you are only a lessee of the land.
The deduction for landcare operations was extended to rural land irrigation water providers for certain expenditure they incur on or after 1 July 2004.
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 incur on a landcare operation for:
- land in Australia that other entities - being entities supplied with water by you - use at the time for carrying on primary production businesses, or
- rural land in Australia that other entities - being entities supplied with water by you - use at the time for carrying on businesses for a taxable purpose from the use of that land (except a business of mining or quarrying).
A rural land irrigation water provider's deduction is reduced by a reasonable amount to reflect an entity's use of the land for other than a taxable purpose after the water provider 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 to prevent or limit further degradation and to help reclaim the areas
- constructing a levee or similar improvement
- constructing drainage works - other than the draining of swamp 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 combating land degradation other than by erecting fences
- an extension, alteration or addition to any of the assets described in the first four dot points or an extension of an operation described in the fifth to seventh dot points.
The meaning of landcare operation was extended to apply to expenditure incurred on or after 1 July 2004 on:
- a repair of a capital nature to an asset which is deductible under a landcare operation
- constructing a structural improvement that is reasonably incidental to levees or drainage works deductible under 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 under 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.
Expenditure incurred on or after 1 July 2004 on a repair of a capital nature, or a change, to a depreciating asset may be eligible for the deduction for landcare operations under the extended rules even though the pre 1 July 2004 expenditure on the asset itself is not eligible for the deduction under the rules before they were extended. This is because the repair or change to the asset is not treated as part of the asset under the extended rules, so the extended rules are separately applied to that repair or change.
No deduction is available for landcare operations if the capital expenditure is on plant unless it is on certain fences, dams or other structural improvements. You work out the decline in value of plant not deductible under the landcare provisions using the general rules for working out decline in value - see Methods of working out decline in value.
There are no specific balancing adjustment rules for a depreciating asset on which capital expenditure has been incurred that is deductible under the landcare provisions. That asset may, however, be considered part of the land for capital gains tax purposes.
If a levee is constructed primarily and principally for water conservation, it would be a water facility and no deduction would be allowable under these rules. You would need to work out its decline in value under the rules for water facilities - see Water facilities.
If you are a rural land irrigation water provider and you can deduct expenditure under both the water facilities and landcare operation rules, you can only deduct the expenditure as expenditure on a water facility.
If the expenditure incurred arises from a non-arm's length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.
A recoupment of the expenditure may be included in your assessable income.
The deduction is not available to a partnership. Costs incurred by a partnership are allocated to each partner who can claim a deduction for their share of the relevant capital expenditure.
Capital expenditure on a landcare operation may be incurred on a depreciating asset. However, if the expenditure is deductible under these rules, you cannot use the general rules for working out decline in value or claim the immediate deduction for certain depreciating assets costing $300 or less.
If you incur the capital expenditure on a depreciating asset and you are a primary producer and an STS taxpayer, you can choose to work out your deductions for these depreciating assets using either the STS capital allowance rules or these UCA rules. For more information about STS taxpayers, see STS taxpayers.