Depreciating assets used in primary production
The general principles of UCA apply to most depreciating assets used in primary production.
However, the decline in value of the following primary production depreciating assets is worked out using special rules:
- water facilities used to conserve or convey water
- fencing assets
- fodder storage assets, and
- horticultural plants (including grapevines).
For depreciating assets deductible under these special rules, you can't use the general rules for working out decline in value or claim the immediate deduction for depreciating assets costing $300 or less (although some are immediately deductible regardless of cost).
Deductions for these assets are not available to a partnership. Costs incurred by a partnership are allocated to each partner who can then claim the relevant deduction for their share of the expenditure.
There are no specific balancing adjustment rules for these depreciating assets. However, the assets may be considered part of the land for CGT purposes.
When the land is disposed of, any deductions you have claimed, or can claim, for the assets may reduce the cost base of the land. For more information, see Guide to capital gains tax 2024.
Primary producers may also be able to claim deductions for capital expenditure on landcare operations, and electricity connections and phone lines.
Water facilities
A water facility is either:
- a plant or a structural improvement that is primarily and principally for the purpose of conserving or conveying water, including a repair of a capital nature, an alteration, addition or extension to that plant or structural improvement
- a structural improvement that is reasonably incidental to conserving or conveying water, including a repair of a capital nature, addition or extension to that structural improvement.
Examples of water facilities are dams, tanks, tank stands, bores, wells, irrigation channels, pipes, pumps, water towers and windmills. Examples of structural improvements that are reasonably incidental to conserving or conveying water are a bridge over an irrigation channel, a culvert (a length of pipe or multiple pipes that are laid under a road to allow the flow of water in a channel to pass under the road) and a fence preventing livestock entering an irrigation channel.
You can fully deduct capital expenditure on a water facility if you incurred the expenditure at or after 7:30 pm AEST on 12 May 2015. You fully deduct the expenditure in the income year in which you incurred it. The total deduction can't be more than the amount of the capital expenditure.
Unless you are an irrigation water provider, the expenditure must be incurred by you primarily and principally for conserving or conveying water for use in a primary production business that you conduct on land in Australia. You may claim the deduction even if you are only a lessee of the land. Your deduction is reduced where the water facility is not wholly used for either:
- carrying on a primary production business on land in Australia, or
- a taxable purpose.
An irrigation water provider is an entity whose business is primarily and principally the supply of water to entities for use in primary production businesses on land in Australia. The supply of water by the use of a motor vehicle is excluded.
If you are an irrigation water provider, you must incur the expenditure primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia (being entities supplied with water by you). Your deduction is reduced if the water facility is not used wholly for a taxable purpose.
If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
No deduction is available for capital expenditure incurred on acquiring a second-hand commercial water facility unless you can show that no one else has deducted or could deduct an amount for earlier capital expenditure on the construction, manufacture or previous acquisition of the water facility.
If you are a primary producer and a small business entity, you can choose to work out your deductions for water facilities under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.
You may need to include a recoupment of expenditure on water facilities in your assessable income. If the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and in later income years. An amount received for the sale of a water facility for its market value is not regarded as an assessable recoupment.
Fencing assets
A fencing asset is an asset or structural improvement that is a fence, or a repair of a capital nature, or an alteration, addition or extension, to a fence. The capital expenditure you incur on the construction, manufacture, installation or acquisition of the fencing asset must have been incurred primarily and principally in a primary production business that you conduct on land in Australia. You may claim the deduction even if you are only a lessee of the land.
The term 'fence' takes its ordinary meaning and includes an enclosure or barrier, usually of metal or wood, as around or along a field or paddock. The term 'fence' extends to parts or components of a fence including, but not limited to, posts, rails, wire, droppers, gates, fittings and anchor assemblies.
You can fully deduct capital expenditure on a fencing asset in the income year in which you incurred the expenditure, so expenditure incurred in 2023–24 is fully deductible in 2023–24. The total deduction can't be more than the amount of the capital expenditure.
If you incurred the expenditure before 7:30 pm AEST on 12 May 2015, the previous UCA that allow you to deduct the capital expenditure on a fencing asset over the effective life of the asset continue to apply.
In addition, you can't deduct an amount for capital expenditure on a fencing asset if the fencing asset is a stockyard, pen or portable fence, or is a repair, alteration, addition or extension to a stockyard, pen or portable fence.
Your deduction is reduced where the fencing asset is not:
- wholly used in carrying on a primary production business on land in Australia, or
- wholly used for a taxable purpose, for example, for the purpose of producing assessable income.
This prevents primary producers from deducting expenditure on a fencing asset to the extent that the asset is used other than in carrying on their primary production business or for a taxable purpose.
If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
If you are a primary producer and a small business entity, you can choose to work out your deductions for fencing assets under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.
You may need to include a recoupment of expenditure on fencing assets in your assessable income. If the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and in later income years. An amount received for the sale of a fencing asset for its market value is not regarded as an assessable recoupment.
Fodder storage assets
A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder. It is also 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.
The capital expenditure you incur 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. You may claim the deduction even if you are only a lessee of the land.
For a fodder storage asset to satisfy the 'primarily and principally' test, its main purpose (other than some incidental or other minor purpose, but not necessarily the sole purpose) must be to store fodder. For example, if a shed was built for the purpose of storing hay but is occasionally used to store a neighbour's tractor when borrowed twice a year, the shed will be an asset that is primarily and principally for the purpose of storing fodder.
The term 'fodder' takes its ordinary meaning and refers to food for livestock. It is usually dried like grain, hay or silage but can include liquid feed supplements. Examples of typical fodder storage assets include:
- silos
- liquid feed supplement storage tanks
- bins for storing dried grain
- hay sheds
- grain storage sheds, and
- above-ground bunkers for silage.
If you incurred a capital expense on a fodder storage asset, you can immediately deduct the cost in the income year you incurred it, if the expense was incurred either:
- on or after 19 August 2018, or
- before 19 August 2018, but the asset was first used or installed ready for use on or after 19 August 2018.
If you incurred the capital expenditure after 7:30 pm AEST on 12 May 2015 but before 19 August 2018, and the asset was first used or installed ready for use before 19 August 2018, you deduct one-third of the expenditure in the income year in which the expenditure is incurred, and the same amount in each of the following 2 income years. The total deduction over the 3 income years can't be more than the amount of the capital expenditure.
If you incurred the expenditure before this time, the previous UCA that allow you to deduct the capital expenditure on a fodder storage asset over the effective life of the asset continue to apply.
Your deduction is reduced in any income year where the fodder storage asset is not:
- wholly used in carrying on a primary production business on land in Australia, or
- wholly used for a taxable purpose, for example, for the purpose of producing assessable income.
This prevents primary producers from deducting expenditure on a fodder storage asset to the extent that the asset is used other than in carrying on their primary production business or for a taxable purpose.
No deduction is available for capital expenditure incurred to acquire a second-hand fodder storage asset unless you can show that no one else has deducted or could deduct an amount for earlier capital expenditure on the construction, manufacture or previous acquisition of the fodder storage asset.
If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
If you are a primary producer and a small business entity, you can choose to work out your deductions for fodder storage assets under either the simplified depreciation rules or these UCA rules. For more information on the simplified depreciation rules, see Small business entity concessions.
You may need to include a recoupment of expenditure on fodder storage assets in your assessable income. If the expenditure is deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and in later income years. An amount received for the sale of a fodder storage asset for its market value is not regarded as an assessable recoupment.
Horticultural plants (including grapevines)
A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts.
You can claim a deduction for the decline in value of horticultural plants, provided:
- you owned the plants (lessees and licensees of land are treated as if they own the horticultural plants on that land)
- you used them in a business of horticulture to produce assessable income, and
- the expense was incurred after 9 May 1995 (or for grapevines, on or after 1 October 2004).
Your deduction for the decline in value of horticultural plants is based on the capital expenditure incurred in establishing the plants. This does not include the cost of purchasing or leasing land, or expenditure in draining swamp or low-lying land or on clearing land. It would include, for example:
- the costs of acquiring and planting seeds, and
- part of the cost of ploughing, contouring, fertilising, stone removal and topsoil enhancement relating to the planting.
You can't claim this deduction for forestry plants.
If the expenditure incurred arises from a non-arm’s length dealing and is more than the market value of what the expenditure was for, the amount of the expenditure is taken to be that market value instead.
The period over which you can deduct the expenditure depends on the effective life of the horticultural plant. You can choose to work out the effective life yourself or you can use the effective life determined by the Commissioner, see Effective life of an asset. If the effective life of the plant is less than 3 years, you can claim the establishment expenditure in full generally in the year in which the first commercial season starts.
If the effective life of the plant is 3 or more years, you can write off the establishment expenditure over the maximum write-off period, which generally begins at the start of what is expected to be the plant’s first commercial season. If the plant is destroyed before the end of its effective life, you are allowed a deduction in that year for the remaining unclaimed establishment costs less any proceeds, for example, insurance payout.
|
Effective life |
Annual write-off rate |
Maximum write-off period |
|---|---|---|
|
3 to less than 5 years |
40 |
2 years 183 days |
|
5 to less than 6⅔ years |
27 |
3 years 257 days |
|
6⅔ to less than 10 years |
20 |
5 years |
|
10 to less than 13 years |
17 |
5 years 323 days |
|
13 to less than 30 years |
13 |
7 years 253 days |
|
30 years or more |
7 |
14 years 105 days |
Where ownership of the horticultural plants changes, the new owner is entitled to continue claiming the balance of capital expenditure they incurred in establishing the plants on the same basis.
If you are a primary producer and a small business entity, you must use UCA to work out your deductions for horticultural plants. For more information on the simplified depreciation rules, see Small business entity concessions.
You may need to include a recoupment of expenditure on horticultural plants in your assessable income. As the expenditure may be deductible over more than one income year, special rules apply to determine the amount of any recoupment to be included in assessable income in the year of recoupment and in later income years. An amount received for the sale of a horticultural plant for its market value is not regarded as an assessable recoupment.
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