Did you have capital expenditure directly connected with a business project?
No |
Go to Landcare operations and business deduction for decline in value of water facility. |
|---|---|
Yes |
Read on. |
You need to know
Certain capital expenditure you incurred after 30 June 2001 which is directly connected with a project you carry on or propose to carry on for a taxable purpose can be allocated to a project pool and written off over the life of the project. Each project has a separate project pool. The project must be of sufficient substance and be sufficiently identified that it can be shown that the capital expenditure said to be a 'project amount' is directly connected with the project.
A project is carried on if it involves a continuity of activity and active participation. Merely holding a passive investment such as a rental property would not be regarded as carrying on a project.
Such capital expenditure, known as a project amount, is expenditure incurred on:
- creating or upgrading community infrastructure for a community associated with the project - this expenditure must be paid (not just incurred) to be a project amount
- site preparation for depreciating assets (other than to drain swamp or low-lying land or to clear land for horticultural plants and grapevines)
- feasibility studies for the project
- environmental assessments for the project
- obtaining information associated with the project
- seeking to obtain a right to intellectual property, or
- ornamental trees or shrubs.
Project amounts also include mining capital expenditure and expenditure on certain facilities used to transport minerals or quarry materials. For more information on these project amounts, see the Guide to depreciating assets 2007.
The expenditure must not be otherwise deductible or form part of the cost of a depreciating asset. 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.
Project amounts are allocated to a 'project pool'. Your deduction for project amounts allocated to a project pool is spread over the 'project life'. The project life is the period from when the project starts to operate until when it stops operating. The period must be limited by something inherent in the project. A deduction for project amounts would be available over that limited project life (or an earlier abandonment, sale or other disposal). If there is no limited project life, no deduction is available under these rules.
A deduction is available starting from the income year if you started to operate a project in that year to gain or produce assessable income. The deduction is worked out on the value of the project pool at the end of the income year. For projects that started to operate on or after 10 May 2006, the calculation of the deduction has changed. You cannot use the higher rate if you abandon, sell or otherwise dispose of an existing project and then restart it on or after 10 May 2006 just so deductions can be calculated using the higher rate.
Use worksheet 5A or 5B to work out your deduction. For projects which started to operate on or after 10 May 2006 the calculation is as follows:
Row |
Calculation element |
Amount |
|---|---|---|
(a) |
Value of project pool at 30 June 2007. This is the closing pool value for the 2005-06 income year (if any) plus the sum of the project amounts you allocated to the pool in 2006-07. |
$ |
(b) |
Your estimate of the life of the project (in years) |
Years |
(c) |
Divide (a) by (b). |
$ |
(d) |
Multiply (c) by 200% - this is your 2006-07 deduction for project pool. |
$ |
Note: Your deduction at (d) must not be more than the amount at (a).
If a project operated in 2006-07 for purposes other than earning assessable business income, you must reduce your deduction at (d) by a reasonable amount for the extent to which the project operated for such purposes.
The pool value can be subject to adjustments. An adjustment could happen under specific rules that apply to transactions conducted in foreign currency (the foreign exchange, or forex, rules). If during the income year you met an obligation to pay foreign currency incurred as a project amount which you allocated to a project pool, you might have derived a gain or incurred a loss under these rules. For more information about the forex rules, visit our website.
Closing pool value for 2006-07
This is (a) minus (d) in worksheets 5A and 5B. You will need the closing pool value for 2006-07 to work out your deduction for the project pool next year.
Any recoupment of the expenditure must be shown as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of item P8 on your schedule.
Where a project was abandoned, sold or otherwise disposed of in 2006-07
In this case - whether or not the project had begun to operate - you can claim a deduction for the 2005-06 closing pool value (if any) plus any project amounts allocated to the pool in the 2006-07 year. You must show any proceeds from the abandonment, sale or disposal of the project as assessable income either at Other business income or as part of your Income reconciliation adjustments in the Reconciliation items section of your schedule.
Completing this item
Step 1 Write your total primary production project pool business deduction at Business deduction for project pool in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.
Step 2 Write your total non-primary production project pool business deduction at Business deduction for project pool in the Non-primary production column. Do not show cents.
Step 3 Add up your primary production and non-primary production project pool business deductions and write the total at L.
Is the amount at L greater than $1,000?
No |
Go to Landcare operations and business deduction for decline in value of water facility. |
|---|---|
Yes |
You will need to complete and attach a Capital allowances schedule 2007 (unless you are an STS taxpayer). |
For more information, see the Capital allowances schedule instructions 2007. This publication is available on our website or to find out how to get a printed copy, see More information. |