ATO Interpretative Decision

ATO ID 2002/103 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that has been repealed with effect from 1 October 2004. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of grapevines planted and used in a business of primary production before that date.
  See TD 2006/46 which reflects the same view in respect of the costs of establishing horticultural plants (including grapevines not planted and used in a business of primary production before 1 October 2004).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether the amount incurred in the purchase of land is deductible under Subdivision 40-F of the Income Tax Assessment Act 1997 (ITAA 1997) as establishment expenditure of grapevines?

Decision

No, a deduction is not allowed under Subdivision 40-F of the ITAA 1997 for the amount incurred in the purchase of land as part of the establishment expenditure of grapevines.

Facts

The taxpayer purchased land and used one third for growing grapevines.

Reasons for Decision

Subdivision 40-F of the ITAA 1997 groups together depreciating assets used in primary production business and provides a deduction for decline in value for capital expenditure on depreciating assets that are water facilities, horticultural plants or grapevines.

Sections 40-545 and 40-550 of the ITAA 1997 provide that establishment expenditure is the amount of capital expenditure incurred that is attributable to either the establishment of the horticultural plant or grapevine. Examples of what is included in establishment expenditure are given in paragraph 5.24 in the Revised Explanatory Memorandum of the New Business Tax System (Capital Allowances) Bill 2001. This paragraph states that the costs of establishing horticultural plants may include the following:

'•

the cost of acquiring the plants or seeds;

•

the cost of planting the plants or seeds;

•

any costs incurred preparing to plant. These do not include the initial clearing of the land, but may in some cases include part of the cost of ploughing, contouring, top dressing, fertilising, stone removal, top soil enhancement and so on, that is attributable to the establishment of the plant;

•

the costs of pot and potting mixtures (for potted plants)

•

the cost incurred in grafting trees; and

•

the costs of replacing existing plants and trees, because of loss of fair economic return or because of declining popularity of a particular existing variety.'

The purchase cost of the land does not form part of the establishment expenditure, as this cost does not relate to the establishment of horticultural plants or grapevines. Furthermore, paragraph 40-30(1)(a) of the ITAA 1997 excludes land from being a depreciating asset.

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 40-F
   paragraph 40-30(1)(a)
   section 40-545
   section 40-550

Other References:
Revised Explanatory Memorandum of the New Business Tax System (Capital Allowances) Bill 2001

Keywords
Deductions & expenses
Capital expenditure
Horticulture

Business Line:  COE: Capital Allowances

Date of publication:  30 January 2002

ISSN: 1445-2782