Tax Law Improvement Act (No. 1) 1998 (46 of 1998)

Schedule 1   Amendment of the Income Tax Assessment Act 1997

8   Section 387-150 (link note)

Repeal the link note, substitute:

Subdivision 387-C - Establishing horticultural plants

Guide to Subdivision 387-C

387-160 What this Subdivision is about

You can deduct capital expenditure on establishing a horticultural plant that you own and use for commercial horticulture. The period over which you can deduct the expenditure depends on the effective life of the plant.

Table of sections

Deductions

387-162 Simplified outline

387-165 Deduction for expenditure relating to establishment of a horticultural plant

387-170 Meaning of horticultural plant, horticulture business, horticulture and commercial horticulture

387-175 Meaning of effective life

387-177 Determination of effective life by the Commissioner

387-180 Immediate write-off for a horticultural plant with an effective life under 3 years

387-185 Deduction for a horticultural plant with an effective life of 3 years or more

387-190 Extra deduction for income year of destruction of a horticultural plant with an effective life of 3 years or more

387-195 Expenditure you cannot deduct

Change of ownership

387-205 Getting tax information if you acquire a horticultural plant (regardless of its effective life)

Lessees and licensees of land with horticultural plants are treated as owners

387-210 Lessees and licensees of land are treated as if they own horticultural plants on the land

387-162 Simplified outline

(1) To get a deduction:

(a) you must own the horticultural plant and use it (or hold it ready for use) for commercial horticulture; and

(b) the expenditure must not be otherwise deductible.

It does not matter who incurred the expenditure.

(2) If the plant's effective life is less than 3 years, you can deduct all the expenditure in the income year when the plant is first used (or held ready for use) for commercial horticulture.

(3) If the effective life is 3 years or more:

(a) you get an annual deduction for the expenditure, worked out on a prime cost basis; and

(b) you can get a special deduction if the plant is destroyed before you have deducted all the expenditure.

(4) If a horticultural plant changes hands, the new owner can require the old owner to provide information to help the new owner work out his or her deductions.

[This is the end of the Guide.]

Deductions

387-165 Deduction for expenditure relating to establishment of a horticultural plant

(1) You can deduct an amount for the *current year for capital expenditure attributable to the establishment of a *horticultural plant in Australia for use in a *horticulture business. (It does not matter who incurred the expenditure.)

Note: Section 387-195 prevents you deducting:

? expenditure on draining swamps or low-lying land; and

? expenditure for which you can get a deduction under other provisions.

First entity to use the plant for commercial horticulture

(2) To get the deduction:

(a) you must be the first entity to use the *horticultural plant (or hold it ready for use) for *commercial horticulture; and

(b) you must own the plant when it is first used (or held ready for use) for commercial horticulture.

(This allows you to choose how the plant's *effective life is fixed.)

Note: You may be treated as owning a horticultural plant if it is on land you hold under a lease, quasi-ownership right or licence: see section 387-210.

Later owner

(3) If the *horticultural plant's *effective life is 3 years or more, you can deduct under this section even if you do not satisfy subsection (2). You can deduct what you could have deducted under this section if you had owned and used the plant for *commercial horticulture when it was first used (or held ready for use) for commercial horticulture.

(However, the other requirements for deductions under this section must still be satisfied, and the plant's effective life is not affected.)

Note: You can get from the last owner of the plant information relevant to working out your deduction for the plant: see section 387-205.

Ownership during current year

(4) If the *horticultural plant's *effective life is 3 years or more, you must also own and use the plant during the *current year as described in subsection 387-185(1).

Amount and timing of deduction

(5) You work out the amount and timing of your deduction:

(a) under section 387-180 if the *effective life of the *horticultural plant is under 3 years; or

(b) under section 387-185 if the *effective life of the *horticultural plant is 3 years or more.

Note 1: Various provisions may prevent or reduce your deduction. For example, see:

? Division 26 of this Act (limiting deductions generally);

? Division 245 of Schedule 2C to the Income Tax Assessment Act 1936 (which may affect your entitlement to a deduction for a horticultural plant with an effective life of 3 years or more if your debts are forgiven).

Note 2: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A.

387-170 Meaning of horticultural plant, horticulture business, horticulture and commercial horticulture

(1) A horticultural plant is a live member of the plant kingdom or fungus kingdom that is cultivated or propagated for any of its products or parts (including foliage, flowers, fruit, fruiting bodies, seeds, bulbs and spores).

(2) A horticulture business is a *business of *horticulture.

(3) Horticulture includes:

(a) propagation and cultivation of a *horticultural plant in any environment (whether natural or artificial); and

(b) propagation and cultivation of seeds, bulbs, spores and similar things; and

(c) propagation and cultivation of fungi.

(4) Use for commercial horticulture means use for the *purpose of producing assessable income in a *horticulture business.

387-175 Meaning of effective life

(1) If you own a *horticultural plant at the time (the starting time) when it is first used (or held ready for use) for *commercial horticulture, the effective life of the plant is worked out under whichever one of subsections (2) and (3) you choose.

(2) If you choose this subsection, the plant's *effective life is the period for which the plant could reasonably be expected to be used for *commercial horticulture, worked out as at the starting time.

(3) If you choose this subsection, the plant's *effective life is the period specified for that kind of *horticultural plant in a determination:

(a) made by the Commissioner under section 387-177; and

(b) operating at the starting time.

You can choose this subsection only if any conditions that the determination specifies for that kind of horticultural plant are met at the starting time.

(4) You make the choice for the first income year for which you can deduct under this Subdivision an amount relating to the *horticultural plant. You cannot change the choice (except under subsection 387-177(3) because of a retrospective determination).

Note: If the plant's effective life was determined under section 124ZZK of the Income Tax Assessment Act 1936, it has the same effective life for the purposes of this Subdivision: see subsection 387-160(3) of the Income Tax (Transitional Provisions) Act 1997.

387-177 Determination of effective life by the Commissioner

(1) The Commissioner may make written determinations for the purposes of subsection 387-175(3). They may specify conditions relating to *horticultural plants.

Note: This subsection also allows the Commissioner to revoke or vary determinations: see subsection 33(3) of the Acts Interpretation Act 1901.

(2) A determination relating to a kind of *horticultural plant may operate retrospectively, but only if:

(a) it is the first determination relating to that kind of plant; or

(b) the retrospectivity works to the advantage of entities in working out the effective life of that kind of plant.

(3) If a determination operates retrospectively, you can choose to work out under subsection 387-175(3) the *effective life of a *horticultural plant to which the determination applies, even if you have previously chosen to work out the plant's effective life under subsection 387-175(2).

(4) You must make the choice by the day when you lodge your first *income tax return after the retrospective determination is made. (However, the Commissioner can allow you to make it later.) You cannot change the choice.

387-180 Immediate write-off for a horticultural plant with an effective life under 3 years

If the *effective life of the *horticultural plant is under 3 years, you deduct the whole of the capital expenditure attributable to the establishment of the plant. The deduction is for the income year in which you first use the plant for *commercial horticulture (or hold it ready for that use).

For a list of some limits on deductions: see Note 1 to subsection 387-165(4).

387-185 Deduction for a horticultural plant with an effective life of 3 years or more

(1) If the *effective life of the *horticultural plant is 3 years or more, your deduction for the income year is worked out using the formula:

Establishment expenditure * (Write-off days in income year / 365) * Write-off rate

where:

establishment expenditure is the amount of the capital expenditure that is attributable to the establishment of the *horticultural plant.

write-off days in income year is the number of days in the income year on which you owned the *horticultural plant and either used it for *commercial horticulture or held it ready for that use.

write-off rate is the rate shown in the table for the *horticultural plant, according to its *effective life:

For a list of some limits on deductions: see Note 1 to subsection 387-165(4).

Limit on write-off days

(2) Disregard your ownership and use of the *horticultural plant on a day outside the period that:

(a) starts when the plant can first be used for *commercial horticulture; and

(b) extends for the time shown in the table (depending on the plant's *effective life).

387-190 Extra deduction for income year of destruction of a horticultural plant with an effective life of 3 years or more

(1) You can deduct the amount worked out under subsection (2) for an income year if:

(a) the *effective life of the *horticultural plant is 3 years or more; and

(b) the plant is destroyed during the income year while you own it and use it for *commercial horticulture.

(2) Work out your deduction as follows:

Method statement

Step 1. Work out the total of the amounts you could have deducted under section 387-165 for the expenditure if you had owned the *horticultural plant and used it for *commercial horticulture for the whole of the period:

(a) starting when the plant could first be used for commercial horticulture; and

(b) ending when the plant was destroyed.

Step 2. Subtract from the establishment expenditure worked out under section 387-185:

(a) the result from Step 1; and

(b) any amount you received (under an insurance policy or otherwise) for the destruction of the *horticultural plant.

The remaining amount (if any) is your deduction under subsection (1).

Note: In Step 1 you must take into account any amounts you could have deducted if section 387-165 had applied to assessments for income years before the 1998-99 income year: see section 387-190 of the Income Tax (Transitional Provisions) Act 1997.

(3) This deduction is in addition to any deduction for the income year under section 387-165 for expenditure on establishing the *horticultural plant.

387-195 Expenditure you cannot deduct

Expenditure on draining swamps or clearing land

(1) You cannot deduct an amount for any income year under this Subdivision for expenditure incurred:

(a) in draining swamp or low-lying land; or

(b) in clearing land.

Expenditure deductible under other provisions

(2) You cannot deduct an amount under this Subdivision for any income year for expenditure to the extent that:

(a) you or another entity can deduct an amount for the expenditure under a provision of this Act (outside this Subdivision) for any income year; or

(b) the expenditure is taken into account in working out a deduction for depreciation; or

(c) the expenditure is part of a pool of *construction expenditure.

Note 1: However, a deduction for an income year before 1998-99 under Division 10F of Part III of the Income Tax Assessment Act 1936 (which deals with horticultural plants) does not prevent you from deducting an amount under this Subdivision: see section 387-195 of the Income Tax (Transitional Provisions) Act 1997.

Note 2: Deductions for depreciation are worked out under Division 42.

Note 3: Construction expenditure in a pool of construction expenditure is deducted under Division 43.

Change of ownership

387-205 Getting tax information if you acquire a horticultural plant (regardless of its effective life)

(1) If you become the owner of a *horticultural plant, you may give the last owner (if any) of the plant a written notice within 60 days after you become the owner, requiring the last owner to give you any or all of the following information within a specified period of at least 60 days:

(a) the amount of establishment expenditure (as defined in section 387-185) for the plant;

(b) the *effective life of the plant;

(c) the day on which the plant could first be used for *commercial horticulture.

The notice must also set out the effect of subsection (2).

Note 1: You may become the owner of a horticultural plant that is on land when it is leased to you, or when you start to hold it under a licence: see section 387-210.

Note 2: Subsections (3) and (4) explain how this subsection operates if the last owner is a partnership.

Requirement to comply with notice

(2) The last owner must not, without reasonable excuse, intentionally refuse or fail to comply with the notice.

Penalty: 10 penalty units.

Giving the notice to a partnership

(3) If the last owner is a partnership:

(a) you may give the notice to the partnership by giving it to any of the partners (this does not limit how else you can give it); and

(b) the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them; and

(c) a partner must not, without reasonable excuse, intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it.

Penalty: 10 penalty units.

Limits on giving a notice

(4) Only one notice can be given in relation to the same acquisition of a *horticultural plant.

Lessees and licensees of land with horticultural plants are treated as owners

387-210 Lessees and licensees of land are treated as if they own horticultural plants on the land

Lessees

(1) You are treated for the purposes of this Subdivision as if you own a *horticultural plant so long as:

(a) the plant is attached to land you hold under:

(i) a lease; or

(ii) a *quasi-ownership right granted by an *exempt Australian government agency or an *exempt foreign government agency; and

(b) the lease or quasi-ownership right enables you to carry on a *horticulture business on the land; and

(c) any holder of a lesser interest or licence relating to the land does not carry on a *horticulture business on the land; and

(d) apart from this section, you do not own the plant.

Licensees

(2) You are treated for the purposes of this Subdivision as if you own a *horticultural plant so long as:

(a) you hold a licence relating to the land to which the plant is attached; and

(b) you carry on a *horticulture business on the land as a result of holding the licence; and

(c) apart from this section, you do not own the plant.

(3) It does not matter who planted the *horticultural plant, for the purposes of working out who its owner is.