D13 Deduction for project pool 2022

Did you have capital expenditure directly connected with a project?

You may be able to claim a deduction at this item for capital expenditure allocated to a project pool for a project you:

• operated in 2021–22 for a taxable purpose
• carried on, or proposed to carry on, for a taxable purpose which was abandoned, sold or otherwise disposed of in 2021–22, before or after it started to operate.

No	Go to question D14 Forestry managed investment scheme deduction 2022, or return to main menu Individual tax return instructions 2022.
Yes	Read on.

You cannot claim a deduction at this item for:

• private or domestic expenditure such as the cost of constructing a driveway at your home
• capital expenditure directly connected with a project undertaken in carrying on a business.

You need to know

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.

A taxable purpose is the purpose of producing assessable income, the purpose of exploration or prospecting, the purpose of mining site rehabilitation or environmental protection activities.

Certain capital expenditure you incurred after 30 June 2001, which was directly connected with a project that you carried on (or proposed to carry on) for a taxable purpose, can be allocated to a project pool and written off over the 'project life'. The expenditure must not otherwise be deductible or form part of the cost of a depreciating asset you hold or held.

Such capital expenditure, known as a 'project amount', is expenditure incurred:

• to create or upgrade community infrastructure for a community associated with the project; this expenditure must be paid, not just incurred, to be a project amount
• for site preparation for depreciating assets (other than in draining swamp or low-lying land or for clearing land for horticultural plants)
• for feasibility studies or environmental assessments for the project
• to obtain information associated with the project
• in seeking to obtain a right to intellectual property
• for ornamental trees or shrubs.

The project amounts are allocated to a 'project pool'. Each project has a separate project pool.

If you are unsure whether the capital expenditure you incurred qualifies as a project amount, see Guide to depreciating assets 2022.

You spread your deduction for project amounts allocated to a project pool over the project life:

• The project life is the period from when the project starts to operate until when it stops operating.
• The project life is not determined by how long you intend to carry on the project. Factors outside your control, such as something inherent in the project such as a legislative or environmental restriction that limits the project's operating period, are relevant to estimating the project life.
• If there is no finite project life, there is no project and therefore no deduction is available under these rules.

You start to deduct amounts for a project pool for the income year when the project starts to operate. So, if you started to operate a project in 2021–22 for a taxable purpose, a deduction is available for 2021–22.

If your project operated in 2021–22 for purposes other than taxable purposes, you must reduce the deduction amount by a reasonable amount for the extent to which the project operated for other than taxable purposes.

If, in 2021–22, you:

• recouped an amount of expenditure allocated to the project pool, or
• derived a capital amount in relation to a project amount or something on which a project amount was expended

then the amount is assessable income and must be shown at item 24 Other income 2022.

Completing this item

Step 1

Did you conduct transactions in a foreign currency for your project in 2021–22?

No	Go to step 2.
Yes	See Foreign exchange rules. Go to step 2.

Step 2

Was your project abandoned, sold or otherwise disposed of in 2021–22?

No

Go to step 3.

Yes

If your project was abandoned, sold or otherwise disposed of in 2021–22 (whether or not the project had started to operate), you can claim a deduction for the 2020–21 closing pool value (if any) plus any project amounts allocated to the pool in 2021–22. You must reduce the deduction to the extent the project operated for a non-taxable purpose during 2021–22. Any amount you received for the abandonment, sale or other disposal is assessable income and must be shown at item 24 Other income 2022. Go to step 4.

Step 3

Use the following worksheet to calculate your deduction.

• The deduction is worked out on the value of the project pool at 30 June 2022. This is the closing pool value for 2020–21 (if any) plus the sum of any project amounts allocated to the pool in 2021–22.
• You must estimate the project life in years, including fractions of years.
• The deduction rate at d in the worksheet could be 200% or 150%.
  • Your deduction rate is 200% where your project pool contains only project amounts incurred on or after 10 May 2006, and the project started to operate on or after that date.
  • Your deduction rate is 150% where your project started to operate before 10 May 2006, or where your project started to operate on or after 10 May 2006 but the project pool contains project amounts incurred before that date.
  • You cannot use the higher rate if you abandon, sell or otherwise dispose of a project begun before 10 May 2006 and then start operating it again, just so that you can work out deductions at the higher rate.
   

Worksheet – Project pool deduction

Row	Calculation	Amount
a	Value of project pool at 30 June 2022	$
b	Estimated project life	(in years)
c	Divide row a by row b.	$
d	Deduction rate	%
e	Multiply row c by row d.	$
f	Take row e away from row a.	$

• If row f is zero or more, your deduction amount for 2021–22 is the amount at row e and the closing pool value for 2021–22 is the amount at row f.
• If row f is less than zero, your deduction amount for 2021–22 is the amount at row a (because your deduction amount cannot be greater than the value of the project pool) and the closing pool value for 2021–22 is zero.
• If your project operated for purposes other than taxable purposes in 2021–22, your deduction amount for 2021–22 is not the full amount at row e or row a as applicable. Instead, your deduction amount is the amount at row e or row a as applicable, reduced by a reasonable amount for the extent to which the project operated in 2021–22 for purposes other than taxable purposes.

You will need the closing pool value for 2021–22 to work out your deduction for project amounts for 2022–23.

Step 4

Write your project pool deduction amount at D item D13 on your tax return.

Foreign exchange rules

The pool value can be subject to adjustments. An adjustment could happen under foreign exchange (forex) rules that apply to transactions conducted in foreign currency.

If during 2021–22 you met or otherwise ceased to have an obligation to pay in a foreign currency a project amount which you allocated to a project pool, you might have derived a gain or incurred a loss under these rules. If the amount in foreign currency became due for payment within 12 months after the time you incurred it, usually the pool value will be reduced by any such gain (known as a forex gain) and it will be increased by any such loss (known as a forex loss).

If the forex gain exceeds the pool value, the pool value is reduced to zero and the residual gain is assessable income which you should include at item 24. If you had previously elected that this treatment (known as 'the 12-month rule') should not apply, any gain will be assessable and should be included at item 24 and any loss will be deductible and should be included at item D15.

See also

• 24 Other income 2022
• D15 Other deductions – not claimable at items D1 to D14 or elsewhere on your tax return 2022
• Foreign exchange gains and losses

Where to go next

• Go to question D14 Forestry managed investment scheme deduction 2022.
• Return to main menu Individual tax return instructions 2022.
• Go back to question D12 Personal superannuation contributions 2022.

This question is about deductions for certain capital expenditure allocated to a project pool.