A water facility includes plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water. The expenditure must be incurred by you primarily and principally for conserving or conveying water for use in your primary production business on land in Australia.
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, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills.
Water facility also includes 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.
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 may be 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.
Irrigation water providers are entitled to a deduction for water facilities 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. For more information, see the Guide to depreciating assets 2005–06 (NAT 1996-6.2006)