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A water facility is plant or a structural improvement that is primarily or principally for the purpose of conserving or conveying water. The expenditure must be incurred primarily and principally for conserving or conveying water for use in your primary production business on land in Australia.
If you are carrying on a primary production business on the land, you may claim the deduction even if you are only a lessee of the land.
You can claim a deduction for the decline in value of a water facility in equal instalments over three income years.
Examples of a water facility are dams, earth tanks, underground tanks, concrete or metal tanks, tank stands, bores, wells, irrigation channels or similar improvements, pipes, pumps, water towers, windmills and extensions or improvements to any of these items.
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-for example, producing assessable income.
Any recoupment of the expenditure is included in your assessable income. As the expenditure on water facilities is deductible over three income years, 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.
These deductions are not available to a partnership. Costs incurred by a partnership for facilities to conserve or convey water are allocated to each partner who can then claim the relevant deduction in respect of their share of the expenditure.
For capital expenditure you incurred on water facilities in the 2000-01 income year, you could choose a tax offset rather than a deduction.
Last modified: 09 Feb 2006QC 27451