Primary production depreciating assets

Depreciating assets used in primary production

The general principles of UCA apply to most depreciating assets used in primary production.

However, the decline in value of the following primary production depreciating assets is worked out using special rules:

• water facilities you use to conserve or convey water
• fencing assets
• fodder storage assets
• horticultural plants (including grapevines).

For depreciating assets deductible under these special rules, you can't use the general rules for working out decline in value or claim the immediate deduction for depreciating assets costing $300 or less (although some are immediately deductible regardless of cost).

Deductions for these assets are not available to a partnership. Costs a partnership incurs you allocate to each partner who can then claim the relevant deduction for their share of the expenditure.

There are no specific balancing adjustment rules for these depreciating assets. However, the assets may be considered part of the land for CGT purposes.

When the land is disposed of, any deductions you claim, or can claim, for the assets may reduce the cost base of the land. For more information, see Guide to capital gains tax 2025.

Primary producers may also be able to claim deductions for capital expenditure on landcare operations, and electricity connections and phone lines.

Water facilities

A water facility is either:

• a plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water, including a repair of a capital nature, an alteration, addition or extension to that plant or structural improvement
• a structural improvement that is reasonably incidental to conserving or conveying water, including a repair of a capital nature, or an alteration, addition or extension to that structural improvement.

Examples of water facilities are dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills.

Examples of structural improvements that are reasonably incidental to conserving or conveying water are 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) and a fence preventing livestock entering an irrigation channel.

You can fully deduct capital expenditure on a water facility if you incur the expenditure at or after 7:30 pm AEST on 12 May 2015. You fully deduct the expenditure in the income year in which you incur it. The total deduction can't be more than the amount of the capital expenditure.

Unless you're an irrigation water provider, you must incur the expenditure primarily and principally for conserving or conveying water for use in a primary production business that you conduct on land in Australia. You may claim the deduction even if you're only a lessee of the land. Reduce your deduction where you don't wholly use the water facility for either:

• carrying on a primary production business on land in Australia
• a taxable purpose.

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 the use of a motor vehicle is excluded.

If you're 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). Reduce your deduction if the water facilities use isn't wholly for a taxable purpose.

If the expenditure you incur 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 instead.

No deduction is available for capital expenditure you incur on acquiring a second-hand commercial water facility unless you can show that no one else has deducted or could deduct an amount for earlier capital expenditure on the construction, manufacture or previous acquisition of the water facility.

If you're a primary producer and a small business entity, you can choose to work out your deductions for water facilities under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.

You may need to include a recoupment of expenditure on water facilities in your assessable income. If the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment you need to include in assessable income in the year of recoupment and in later income years. An amount you receive for the sale of a water facility for its market value isn't an assessable recoupment.

Fencing assets

A fencing asset is an asset or structural improvement that is a fence, or a repair of a capital nature, or an alteration, addition or extension, to a fence. You must incur the capital expenditure on the construction, manufacture, installation or acquisition of the fencing asset and must be primarily and principally in a primary production business that you conduct on land in Australia. You may claim the deduction even if you're only a lessee of the land.

The term 'fence' takes its ordinary meaning and includes an enclosure or barrier, usually of metal or wood, as around or along a field or paddock. The term 'fence' extends to parts or components of a fence including, but not limited to, posts, rails, wire, droppers, gates, fittings and anchor assemblies.

You can fully deduct capital expenditure on a fencing asset in the income year in which you incur it. The total deduction can't be more than the amount of the capital expenditure.

If you incur expenditure before 7:30 pm AEST on 12 May 2015, the previous UCA that allows you to deduct the capital expenditure on a fencing asset over the effective life of the asset continues to apply.

In addition, you can't deduct an amount for capital expenditure on a fencing asset if the fencing asset is a stockyard, pen or portable fence, or is a repair, alteration, addition or extension to a stockyard, pen or portable fence.

Reduce your deduction where the fencing asset isn't wholly in use:

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

This prevents primary producers from deducting expenditure on a fencing asset to the extent that the asset is used other than in carrying on their primary production business or for a taxable purpose.

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 instead.

If you're a primary producer and a small business entity, you can choose to work out your deductions for fencing assets under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.

You may need to include a recoupment of expenditure on fencing assets in your assessable income. If 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 in later income years. An amount you receive for the sale of a fencing asset for its market value isn't assessable recoupment.

Fodder storage assets

A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder. It's also a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder.

The capital expenditure you incur on the construction, manufacture, installation or acquisition of the fodder storage asset must have been incurred primarily and principally for use in a primary production business that you conduct on land in Australia. You may claim the deduction even if you're only a lessee of the land.

For a fodder storage asset to satisfy the 'primarily and principally' test, its main purpose (other than some incidental or other minor purpose, but not necessarily the sole purpose) must be to store fodder. For example, if a shed was built for the purpose of storing hay but is occasionally you use it to store a neighbour's tractor when you borrow it twice a year, the shed will be an asset that is primarily and principally for the purpose of storing fodder.

The term 'fodder' takes its ordinary meaning and refers to food for livestock. It's usually dried like grain, hay or silage but can include liquid feed 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 for silage.

If you incur a capital expense on a fodder storage asset, you can immediately deduct the cost in the income year you incur it, if you incur the expense either:

• on or after 19 August 2018
• before 19 August 2018, but you use or first install the asset ready for use on or after 19 August 2018.

You can deduct one-third of capital expenditure you incur in an income year if:

• you incur the capital expenditure after 7:30 pm AEST on 12 May 2015 but before 19 August 2018
• you use or first install the asset ready for use before 19 August 2018.

You can deduct this same amount in each of the following 2 income years. The total deduction over the 3 income years can't be more than the amount of the capital expenditure.

If you incur the expenditure before this time, the previous UCA that allows you to deduct the capital expenditure on a fodder storage asset over the effective life of the asset continues to apply.

Reduce your deduction in any income year where the fodder storage asset isn't wholly in use:

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

This prevents primary producers from deducting expenditure on a fodder storage asset to the extent that the use is for other than in carrying on their primary production business or for a taxable purpose.

No deduction is available for capital expenditure you incur to acquire a second-hand fodder storage asset unless you can show that no one else has or will claim a deduction amount for earlier capital expenditure on the construction, manufacture or previous acquisition of the fodder storage asset.

If the expenditure you incur 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 that market value instead.

If you're a primary producer and a small business entity, you can choose to work out your deductions for fodder storage assets under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.

You may need to include a recoupment of expenditure on fodder storage assets in your assessable income. If 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 in later income years. An amount you receive for the sale of a fodder storage asset for its market value isn't an assessable recoupment.

Horticultural plants (including grapevines)

A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts.

You can claim a deduction for the decline in value of horticultural plants, provided all the following apply:

• you own the plants (lessees and licensees of land are treated as if they own the horticultural plants on that land)
• you use them in a business of horticulture to produce assessable income
• you incur the expense after 9 May 1995 (or for grapevines, on or after 1 October 2004).

Base your deduction for the decline in value of horticultural plants on the capital expenditure you incur in establishing the plants. This doesn't include the cost of purchasing or leasing land, or expenditure in draining swamp or low-lying land or on clearing land. It would include, for example both:

• the costs of acquiring and planting seeds
• part of the cost of ploughing, contouring, fertilising, stone removal and topsoil enhancement relating to the planting.

You can't claim this deduction for forestry plants.

If you incur expenditure arising from a non-arm’s length dealing and it exceeds the market value of what the expenditure was for, take the expenditure amount to be that market value instead.

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 determined by the Commissioner, see Effective life of an asset. If the effective life of the plant is less than 3 years, you can claim the establishment expenditure in full generally in the year in which the first commercial season starts.

If the effective life of the plant is 3 or more years, you can write off the establishment expenditure over the maximum write-off period, which generally begins at the start of what is expected to be the plant’s first commercial season. If the plant is destroyed before the end of its effective life, you're allowed a deduction in that year for the remaining unclaimed establishment costs less any proceeds, for example, insurance payout.

Table: Plants with an effective life of 3 or more years

Effective life	Annual write-off rate %	Maximum write-off period
3 to less than 5 years	40	2 years 183 days
5 to less than 6⅔ years	27	3 years 257 days
6⅔ to less than 10 years	20	5 years
10 to less than 13 years	17	5 years 323 days
13 to less than 30 years	13	7 years 253 days
30 years or more	7	14 years 105 days

Where ownership of the horticultural plants changes, the new owner can continue claiming the balance of capital expenditure they incur in establishing the plants on the same basis.

If you're a primary producer and a small business entity, you must use UCA to work out your deductions for horticultural plants. For more information on the simplified depreciation rules, see Small business entity concessions.

You may need to include a recoupment of expenditure on horticultural plants in your assessable income. As the expenditure may be deductible over more than one income year, special rules apply to determine the amount of any recoupment you include in assessable income in the year of recoupment and in later income years. An amount you receive for the sale of a horticultural plant for its market value isn't an assessable recoupment.

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