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Sustainable rural water use and infrastructure program

Choosing the income tax treatment of payments, matched expenditure and deductions under this program.

Last updated 23 August 2016

The Sustainable rural water use and infrastructure program (SRWUIP) is a national program investing in rural water use, management and efficiency projects, including improved knowledge, market reforms and water skills development.

The program was delivered by the Department of Sustainability, Environment, Water, Population and Communities. On 21 September 2015, responsibility for water policy and resources was transferred to the Department of Agriculture and Water Resources.

See also

About the changes

The law has changed to allow eligible taxpayers to choose how SRWUIP payments, matched expenditure and deductions are treated in the assessment of their income tax obligations. This change is retrospective, and applies from 1 April 2010.

If you have received a payment under SRWIUP, you may be affected. This information outlines the changes, eligibility criteria, and the effect your choice of tax treatment will have on your payments.

You can choose to apply one of the following tax provisions:

  • ordinary income provisions
  • non-assessable non-exempt income (NANE) provisions.

Eligibility

To be eligible to make a choice on the tax treatment of your SRWUIP payment, you must consider all of the following:

Eligible programs

You can go to Department of Climate Change, Energy, the Environment and Water.gov.auExternal Link for a list of eligible programs.

Some of the eligible programs have a start and end date. When you are considering the eligibility of the program, you will need to consider the program's eligibility start and end date.

Eligible participants

An eligible participant must meet one of the following three conditions.

Condition 1

  • You received an eligible payment under an eligible program to improve irrigation infrastructure.
  • You generate efficiencies in water use through those improvements.
  • You return water savings to the Commonwealth or the organisation that made the payment to you. These organisations may include:      
    • state government agencies administering eligible programs using SRWUIP funds received from the Commonwealth
    • irrigation infrastructure operators
    • industry associations
    • regional water providers
    • catchment management authorities
    • irrigation co-operatives
    • grower associations
    • peak irrigation bodies. 

Condition 2

  • You lease land, and the water rights to that land.
  • Your landlord received an eligible payment under an eligible program.
  • You receive a payment from your landlord to improve the irrigation infrastructure on the land.
  • You return water savings to the landlord.

Condition 3

  • You are associated with an eligible participant (for example, your farm, including the land and water, is held by a family trust and you are a beneficiary of the trust).
  • The eligible participant receives an eligible payment (for example, a trust receives an eligible payment).
  • You incur the expenditure to improve the irrigation infrastructure.

You and the associated entity must apply the same choice of tax treatment to the eligible payment.

Example: Eligible participant

Beale Avocados leased land and related water rights from a landlord to increase its avocado-growing business.

Beale Avocados agrees to upgrade channels on the land in return for a payment from their landlord. The landlord is an eligible participant, and receives an eligible payment. As the owner of the water right, the landlord also returns some of the water savings back to the Commonwealth.

The water rights leased by Beale Avocados will be proportionately reduced in relation to the landlords' water rights.

Beale Avocados employs Kevin, an earthmoving contractor, to upgrade the channels. Both Beale Avocados and Kevin can trace their payments to an eligible payment made under an eligible program.

Beale Avocados is an eligible participant because they have the leasehold right to use the channels and the water rights, which are considered to be assets of the business.

Kevin is not an eligible participant because he is acting as an agent employed to undertake the work for Beale Avocados and has no rights to the use of the channels or the water as an asset.

End of example

Ineligible participants

If any of the following apply, you are not an eligible participant:

  • You are undertaking work as an agent of an eligible participant. For example, you are a contractor performing the work, or a lawyer drawing up the water transfer certificate.
  • You are a bank or financier that may own the relevant assets for the purposes of securing a loan.
  • You do not have a right to use the channel, water infrastructure or water rights as an asset in your business.

Eligible payments

An eligible payment may have two components:

  • a payment from the Commonwealth to the irrigator, irrigation infrastructure operator, or regional water provider to acquire the water rights
  • a payment to improve infrastructure and increase water use efficiency.

There are two ways you can receive an eligible payment:

  • a direct payment is received from the Commonwealth
  • an indirect payment is received through an organisation who received an eligible payment from the Commonwealth. These organisations may include:      
    • state government agencies administering eligible programs using SRWUIP funds received from the Commonwealth
    • irrigation infrastructure operators
    • state government water authorities
    • industry associations
    • regional water providers
    • catchment management authorities
    • irrigator cooperatives
    • grower associations.  

An indirect payment will be eligible if both of the following apply:

  • the payment is clearly linked to an eligible payment received by an organisation for an eligible SRWUIP.
  • you are an eligible participant.

Payments you receive from a state government under an eligible SRWUIP are not eligible payments.

Example: Payment with eligible and ineligible components

Harriett grows irrigated cotton in northern NSW, and is a member of the Irrigation Association.

The Irrigation Association receives money under an eligible program. Most of the funding is from the Commonwealth, but the NSW Government has provided top-up funding which is not linked to the Commonwealth funding.

Harriett receives $50,000 from the Irrigation Association to undertake irrigation infrastructure development under an eligible program.

The payment is made up of two components:

  • $40,000 from the Commonwealth (an eligible payment)
  • $10,000 from the NSW Government, which is not linked to the Commonwealth funding (an ineligible payment).

As additional payments made by a state government under a SRWUIP, not linked to the Commonwealth funding, are not eligible payments, Harriet must treat the $10,000 payment as assessable income. Harriet can only consider her choices in relation to the $40,000 payment from the Commonwealth (the eligible payment).

End of example

Where the payment came from

If you received the payment directly, you have entered into an agreement or contract with the Department of Sustainability, Environment, Water, Population and Communities. Details of the payments are set out in the agreement you have with them.

If the payment is received indirectly, you have entered into an agreement or contract with an organisation which has an agreement with the Commonwealth under an eligible SRWUIP. As these agreements or contracts vary, you will need to seek advice from the organisation about whether the payment was an eligible payment from an eligible program.

Additional money to meet obligations

If you spend money to enter into an eligible program agreement and you received, or will receive, an eligible payment, you can include this amount if you meet both of these conditions:

  • the expenditure is matched to eligible payments
  • you are able to include this amount in your choice.

You may receive from the state government funding that is not linked to the Commonwealth funding to help you meet your obligations under a SRWUIP. You can't include this amount in your choice as it is not an eligible payment. This also applies to expenditure and deductions which are not reasonably matched to an eligible payment.

If you spend more money that you have received under an agreement (a cost overrun), the related expenditure and deductions would not be reasonably matched to an eligible payment. However you may be able to claim some of that expenditure either as a general deduction or a deduction for land care or water facility improvements.

If you hold the eligible payment in a bank account, and you receive interest, the interest is not reasonably matched to the payment so it must be included as income.

Example: Eligible payment and NANE income

Harriett received a $50,000 payment to undertake irrigation infrastructure development.

$40,000 of her payment is an eligible payment. $10,000 of her payment was received from the NSW Government, so it is an ineligible payment. Harriet also spends an extra $10,000 on irrigation infrastructure.

Description of Harriet's expenditure

$ Cost

Infrastructure development matched to eligible payment

$40,000.00

Infrastructure development matched to the payment from the state

$10,000.00

Additional improvement works

$10,000.00

Total amount expended

$60,000.00

Harriet decides to treat the $40,000 as NANE income, and cannot claim deductions for expenditure matched to this income. She would report as income the $10,000 payment received from the state, and can claim allowable deductions related to the claimable expenditure ($20,000) because it is not matched to the NANE income.

End of example

Choices of tax treatment available

You can choose to apply one of the following tax provisions:

The table below shows you the impact these choices will have on your payments.

Type of payment and ordinary or NANE income provisions

Type of payment

Ordinary income provisions

NANE income provisions

Payment to acquire water right

Include payments attributed to the acquisition of the water right as capital proceeds.

This may give rise to a capital gain or loss.

If your asset was acquired before 20 September 1985, your asset is exempt from capital gains tax. This means you disregard any capital gain or loss.

Disregard any capital gain or loss that is related to the eligible payment.

Payment to fund infrastructure improvement

The payment is considered a subsidy and must be included in your assessable income.

Some expenditure can be claimed as a general deduction in the year it is incurred.

You may deduct expenditure for water infrastructure improvements over a period of time. See Water facilities for more information.

All eligible payments are NANE income. This means that you exclude the eligible payment when you are working out your taxable income and losses.

You cannot claim any deductions for expenditure matched, or reasonably expected to be matched, to the eligible payment.

Do not include SRWUIP expenditure when working out your:

This does not apply to things like legal fees to action a transfer of water rights, or interest on money borrowed to undertake improvements, as these expenses are not reasonably matched.

When to make a choice about tax treatment

You make your choice about tax treatment when you complete your tax return.

Once you have made your choice, you cannot change it. Your choice will apply to all eligible payments you have already received and any you may receive in the future. You need to consider the impact on all the income tax returns affected by your choice.

The choice can only be applied to eligible payments made on or after 1 April 2010. It will not apply to either of the following:

  • indirect payments matched to an eligible payment made before 1 April 2010, even if the indirect payment was made on or after that date
  • expenditure incurred on or after 1 April 2010 which is matched to an eligible payment made before 1 April 2010.

You must keep evidence of your choice for five years.

Associated entities and tax treatment

You and your associated entities must apply the same choice.

If the entity you are associated with chooses to treat an eligible payment as NANE income, and you incur expenditure matched to that eligible payment, you cannot claim deductions for the expenditure even though you did not receive the payment.

Example: Trust and NANE provisions

Tom is a sole trader and operates a market garden. The land and water rights are owned by the LDP Trust. Tom and his family are beneficiaries of the LDP Trust so they are associates of the trust.

The LDP Trust receives an eligible payment of $100,000 to spend on water infrastructure improvements. The trust arranges for Tom to undertake the improvements and lends him the $100,000 to do this work. The LDP Trust makes a choice to treat the eligible payment as NANE income.

The improvements undertaken by Tom will satisfy the LDP Trust's obligations, but the trust will not have incurred expenditure as the loan Tom received from the trust has to be repaid.

If the LDP Trust chooses to apply the NANE income provisions, Tom must make the same choice. This means he cannot deduct expenditure related to the eligible payment.

End of example

See also

QC36097