ATO Interpretative Decision

ATO ID 2004/689 (Withdrawn)

Income Tax

Capital Allowances: primary production - water facilities
FOI status: may be released
  • This ATOID is withdrawn because the decision is no longer relevant as a result of the amendment of the legislative provision upon which it is based.
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Status of this decision: Withdrawn
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Can the taxpayer continue to claim a deduction for the water facility they constructed, under section 40-515 of the Income Tax Assessment Act 1997 (ITAA 1997), after they have sold the facility?


Yes. A deduction is available under section 40-515 of the ITAA 1997 to the taxpayer even after the water facility has been sold, provided that the facility is still wholly being used for a taxable purpose, or in carrying on a primary production business.


The taxpayer owned a farm in Australia and had incurred capital expenditure on the construction of a water facility as defined in subsection 40-520(1) of ITAA 1997 for the purpose of conserving water for use in the primary production business undertaken by the taxpayer on that farm. The taxpayer met the requirements for entitlement to a deduction under section 40-515 of the ITAA 1997 in the year of incurring the expenditure to construct the water facility.

The farm, including the water facility, was sold as a going concern in the income year subsequent to that in which the water facility expenditure was incurred. After the farm was sold, a primary production business continued to be carried on using the water facility.

Reasons for Decision

Paragraph 40-515(1)(a) of the ITAA 1997 provides that you can deduct an amount equal to the decline in value for an income year of a water facility. A deduction for the decline in value of a water facility is allowed in equal instalments over three income years (section 40-540 of the ITAA 1997).

In order to obtain the deduction under paragraph 40-515(1)(a) of the ITAA 1997, the taxpayer must incur capital expenditure on construction, manufacture, installation or acquisition of the water facility, and the expenditure must have been incurred primarily and principally for the purpose of conserving or conveying water for use in a primary production business on land in Australia (paragraph 40-525(1)(a) of the ITAA 1997).

Subsection 40-555(1) of the ITAA 1997 provides that no deduction is available for capital expenditure on the acquisition of a water facility if any person has deducted or can deduct an amount under Subdivision 40-F of the ITAA 1997 for any income year for earlier capital expenditure on the construction, manufacture or previous acquisition of that water facility.

Subsection 40-515(4) of the ITAA 1997 requires a deduction to be reduced for an income year if a water facility was not wholly used in (a) carrying on a primary production business on land in Australia or (b) for a taxable purpose. The subsection does not specify a particular taxpayer.

As the requirements of section 40-515 of the ITAA 1997 were met for the taxpayer in the year that the expenditure was incurred, and the reduction in subsection 40-515(4) does not apply, a deduction is allowed under section 40-515 to the taxpayer in the year of incurring expenditure, for the decline in value of the water facility, as worked out under section 40-540 of the ITAA 1997.

For each of the following two years, as the facility was wholly used in carrying on a primary production business, a deduction is allowed under section 40-515 of the ITAA 1997.

Amendment History

Date of Amendment Part Comment
12 December 2014 Facts, Reasons for Decision Minor wording

Date of decision:  16 July 2004

Year of income:  Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 40-515
   paragraph 40-515(1)(a)
   subsection 40-515(4)
   subsection 40-520(1)
   paragraph 40-525(1)(a)
   section 40-540
   subsection 40-555(1)

Related Public Rulings (including Determinations)
Taxation Determination TD 96/41

Capital expenditure
Decline in value
Primary production
Taxable purpose
Water conservation and conveying expenses

Siebel/TDMS Reference Number:  4064831; 1-5VZEY1E; 1-CVF8109

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  20 August 2004

ISSN: 1445-2782

  Date: Version:
  16 July 2004 Original statement
  12 December 2014 Updated statement
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