• Water facilities

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    A water facility includes plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water. It also includes an alteration, addition or extension to that plant or structural improvement. Examples of water facilities are dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills.

    The meaning of water facility has been extended to include certain other expenditure incurred on or after 1 July 2004:

    • a repair of a capital nature to plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water - for example, if you purchase a pump that needs substantial work done to it before it can be used in your business, the cost of repairing the pump may be treated as a water facility
    • a structural improvement, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to conserving or conveying water
    • a repair of a capital nature to a structural improvement that is reasonably incidental to conserving or conveying water.

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

    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 water facilities under the extended rules. This is the case 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, and the extended rules are separately applied only to that repair or change.

    You can claim a deduction for the decline in value of a water facility in equal instalments over three income years.

    Unless you are an irrigation water provider, the expenditure must be incurred by you primarily and principally for conserving or conveying water for use in a primary production business you conduct on land in Australia. You may claim the deduction even if you are only a lessee of the land. Your deduction is reduced where the water facility is not wholly used for either:

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

    The deduction for water facilities was extended to irrigation water providers for expenditure incurred on or after 1 July 2004. 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 using a motor vehicle is excluded.

    If you are 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. Your deduction is reduced if the water facility is not used wholly 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 it was for, the amount of the expenditure is taken to be that market value.

    No deduction is available for capital expenditure incurred 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 or previous acquisition of the water facility.

    If you are a primary producer and an STS taxpayer, you can choose to work out your deductions for water facilities under either the STS capital allowance rules or these UCA rules. For more information about STS taxpayers, see STS taxpayers.

    You may need to include a recoupment of expenditure on water facilities in your assessable income. As 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 received for the sale of a water facility for its market value is not regarded as an assessable recoupment.

    Last modified: 27 Aug 2007QC 27892