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Edited version of private advice
Authorisation Number: 1051623101709
Date of advice: 23 December 2019
Ruling
Subject: Income tax - decline in value - fodder storage asset
Question
Does the shed meet the definition of a fodder storage asset as described in section 40-515 of the Income Tax Assessment Act 1997, and therefore can the tax payer claim an immediate deduction for the capital expenditure in 2019?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 20XX
The scheme commences on
20XX
Relevant facts and circumstances
You are in the business of primary production.
You have no livestock, but grow fodder.
You have a shed that is used solely for the purpose of storing the fodder, which will be sold to other farmers with the intention that it is used to feed livestock.
The shed is not second hand.
You have provided details of when expenditure was incurred to construct/install the shed and when it was first ready for use.
Relevant legislative provisions
Income Tax Assessment Act 1997, paragraph 40-515(1)(c)
Income Tax Assessment Act 1997, subsection 40-515(2)
Income Tax Assessment Act 1997, paragraph 40-515(3)(c)
Income Tax Assessment Act 1997, subsection 40-515(4)
Income Tax Assessment Act 1997, subsection 40-520(3)
Income Tax Assessment Act 1997, section 40-548
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated.
Summary
The shed meets the definition of a fodder storage asset as described in section 40-515. As you satisfy all of the requirements of section 40-515 in relation to the fodder storage asset, you may claim an immediate deduction for the capital expenditure in 2019.
Detailed reasoning
Paragraph 40-515(1)(c) provides that you can deduct an amount equal to the decline in value for an income year of a fodder storage facility.
A fodder storage asset is defined in subsection 40-520(3) as
an asset or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder.
Fodder refers to food for livestock, such as grain, hay or silage. It can include liquid feed and supplements, or any feed that could fit into the ordinary meaning of fodder.
If you are a grain farmer and you grow feed grain and store it in a silo for sale to livestock producers, the silo meets the 'primarily and principally' test because the main purpose of the silo is to store fodder.
Subsection 40-515(2) provides that
... the applicable condition in section 40-525 must be satisfied for the * depreciating asset.
The applicable condition for fodder storage asset is contained in subsection 40-525(3) and states that
The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the *fodder storage asset must have been incurred primarily and principally for use in a *primary production business that you conduct on land in Australia.
Paragraph 40-515(3)(c) limits the deduction for a fodder storage unit to the amount of capital expenditure incurred on the asset.
Subsection 40-515(4) requires that you must reduce your deduction for a fodder storage asset for an income year by the part of the asset's decline in value that is attributable to the period (if any) in the income year when it was:
(a) not wholly used in carrying on a primary production business on land in Australia; or
(b) not wholly used for a taxable purpose.
The decline in value of the fodder storage asset is worked out in accordance with section 40-548. The following guidance is provided in Taxation Ruling TR 2019/5 Income tax: effective life of depreciating assets (applicable from 1 July 2019):
55. Primary producers can claim an immediate deduction for capital expenditure they incur on the construction, manufacture, installation or acquisition of a fodder storage asset where the expense is incurred:
(a) on or after 19 August 2018, or
(b) before 19 August 2018 and the asset was first used or installed ready for use on or after 19 August 2018.
Your shed is solely used to store fodder as part of your primary production business of growing and selling fodder to farmers for feeding their livestock. The shed is therefore considered to be a fodder storage asset as described in section 40-515.
As the shed was first ready for use after 19 August, you can claim an immediate deduction for the capital expenditure in the year ended 30 June 2019.