Water facility
A water facility is plant or a structural improvement, or an alteration, addition or extension to plant or a structural improvement that is primarily and principally used to conserve or convey water.
You can't claim a deduction for a swimming pool even though the water is available for emergency use, such as for fire-fighting or irrigation.
Water facilities include:
- dams, earth and underground tanks
- concrete, plastic and metal tanks and tank stands
- bores and wells
- irrigation channels and similar improvements
- pipes and pumps (including those used for fire-fighting)
- water towers and windmills
- extensions and improvements to any of these items.
Eligible expenditure on a water facility also includes:
- capital repairs to plant or structural improvements which are primarily for the purpose of conserving or conveying water
- a new structural improvement, or an alteration, addition, extension or capital repair to an existing structural improvement, that is reasonably incidental to conserving or conveying water. Examples include a
- culvert
- fence to prevent livestock entering an irrigation channel
- bridge over an irrigation channel.
Irrigation water provider
An irrigation water provider primarily and principally supplies water to primary producers or to businesses using rural land (except for a mining or quarrying business). Water suppliers who use motor vehicles (for example, water tankers) are not considered irrigation water providers.
The deduction amount you can claim
Primary producers and irrigation water providers can immediately deduct eligible costs of water facilities.
If you incurred capital expenditure on a water facility, deduct the whole amount in the income year in which the expenditure occurred.
Your deduction must be reduced to reflect any time when the facility was not wholly used for a taxable purpose.
However, special rules apply where you have incurred expenditure on water facilities in connection with payments received from the Sustainable rural water use and infrastructure program (Sustainable rural water use and infrastructure program (SRWUIP). You must disregard any expenditure that you can't deduct where you have received a non-assessable non-exempt (NANE) payment in connection with that program.
If the costs were incurred by a partnership, a partner can only claim the deduction for their share of the expenditure.
Recouped expense
Any expense you recoup is included in your assessable income.
Second-hand assets
If the water facility is a second-hand asset, special rules apply.
If you are a primary producer who is a small business entity, you may choose to use the small business simplified depreciation rules to claim a deduction for eligible depreciation of a second-hand water facility.
A deduction for the depreciation of a second-hand water facility may also be available if you can prove that no one else has or can deduct an amount for the asset's depreciation.
If you aren't eligible to claim a deduction for the second-hand asset under either the primary production or small business rules, you can't claim a deduction for the asset.
If you sell an asset
If you sell an asset for which you can claim a deduction, and the buyer uses the asset wholly to produce assessable income, you can continue to claim the deduction. This includes any deduction you would be entitled to claim in subsequent years.
However, if the buyer does not use the asset to produce assessable income you must apportion your deduction. Examples would include where the buyer used the asset on a hobby farm or for domestic purposes or if you sell it to a dealer.
Proceeds of the sale
If you sell an asset, you can claim a deduction under the primary production accelerated depreciation rules. The proceeds of the sale are assessable as a capital gain.
You must exclude any amount claimed as a deduction from the cost base of the asset for capital gains tax purposes.