ATO Interpretative Decision

ATO ID 2003/234 (Withdrawn)

Income Tax

Capital Allowances: Primary Production - Depreciating Assets - Water Facilities
FOI status: may be released

This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at the following: Information for primary producers (NAT 1712) and Guide to depreciating assets (NAT 1996).

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 23 September 2015.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.

Issue

Can a taxpayer who purchases a property that is used in a business of primary production claim a deduction for the decline in value of water facilities constructed prior to the purchase of the property by another taxpayer under Subdivision 40-B of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Subsection 40-50(1) of the ITAA 1997 provides that where a taxpayer or another taxpayer has deducted or can deduct amounts for water facilities under Subdivision 40-F of the ITAA 1997 or the former Subdivision 387-B of the ITAA 1997 then a deduction for the decline in value of the existing water facilities is not available under Subdivision 40-B of the ITAA 1997.

Facts

Taxpayer A purchased a primary production property as a going concern from Taxpayer B on 1 August 2001. At the time of purchase the property had on it a bore and rock dam.

Prior to the purchase of the property, Taxpayer B had leased part of the land to Taxpayer C in 1998. Taxpayer C was not in the business of primary production.

Taxpayer C did a number of activities on the leased part of the property including the construction of a bore and rock dam. Upon expiration of the lease Taxpayer B acquired the bore and rock dam constructed by Taxpayer C for nil cost and used the bore and rock dam primarily and principally for conveying and conserving of water in their primary production business.

Reasons for Decision

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value of a depreciating asset to the extent that it is used for a taxable purpose.

Taxpayer B has acquired the bore and rock dam on the expiration of the lease for nil cost. As the bore and rock dam has been used primarily and principally for the purpose of conveying and conserving water in Taxpayer B's primary production business they qualify as water facilities under section 387-130 of the ITAA 1997.

Taxpayer B would have been entitled to claim a deduction for these water facilities under section 387-125 of the ITAA 1997, notwithstanding that the amount of this deduction is zero.

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 acquisition of that water facility.

Paragraph 40-525(a) of the Income Tax (Transitional Provisions) Act 1997 provides that a taxpayer is taken as having deducted or being able to deduct an amount under Subdivision 40-F of the ITAA 1997 for expenditure on a water facility if the person has deducted or can deduct an amount for it under Subdivision 387-B of the ITAA 1997.

Subsection 40-50(1) of the ITAA 1997 provides that Subdivision 40-B of the ITAA 1997 does not apply where a taxpayer or another taxpayer has deducted or can deduct an amount under Subdivision 40-F of the ITAA 1997. Therefore no deduction for the decline in value on the water facilities is available to Taxpayer A under Subdivision 40-B of the ITAA 1997 as Taxpayer B was entitled to claim a deduction under Subdivision 387-B of the ITAA 1997.

Date of decision: 24 March 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-25
   subsection 40-50(1)
   subsection 40-555(1)
   Subdivision 40-B
   Subdivision 40-F
   section 387-125
   section 387-130
   Subdivision 387-B

Income Tax (Transitional Provisions) Act 1997
paragraph 40-525(a)

Keywords
Capital expenditure
Dam, bore & windmill construction expenses
Decline in value
Depreciating assets
Primary production
Water conservation & conveying expenses

Business Line: Private Groups and High Wealth Individuals

Date of publication: 11 April 2003

ISSN: 1445-2782

history

	Date:	Version:
	24 March 2003	Original statement
You are here →	23 September 2015	Archived

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