Special rules exist to allow up-front tax deductions in relation to capital expenditure incurred on water facilities assets. These claims are available to either primary producers or entities who supply water to primary producers.
For entities eligible for the deduction, the ATO allows a 100% claim on capital expenditure related to the development of water facilities, when expenditure incurred after 12 May 2015. The tax deduction is available in the income year in which the expenses were actually “incurred”, instead of the typical requirement of being “installed and ready for use” for traditional depreciation claims.
For example, where the materials to install new irrigation lines have been purchased, but not yet installed, these costs will be eligible to be claimed in the year of purchase. In addition, where irrigation assets form part of a broader asset construction (e.g. greenhouses), the irrigation component only will be eligible for the write off.
So what is a water facility asset?
A water facility asset is an item of plant or structural improvement that is primarily and principally for the purpose of conserving or conveying water.
Water facilities assets include:
- Earth tanks
- Underground tanks
- Concrete, plastic or metal tanks
- Water Towers
- Irrigation Channels or similar improvements
- Sprinkler or Drip Systems
- Expenditure relating to capital repairs or structural improvements that are reasonably incidental to conserving or conveying water (e.g. a bridge over an irrigation channel or a connection to existing mains electricity) are also eligible for the accelerated write-off provisions.
It should be noted that in addition to the above water facility provisions, many growers will still be eligible to access the 100% tax deduction for assets costing less than $20,000, assuming the grower fulfills the small business criteria (carrying on a business and with an annual turnover of less than $10 million). The $20,000 immediate write-off will be available to all small business taxpayers until 30 June 2018.
The asset deductions noted above should be considered in light of your year end tax planning calculations, as there may be resulting impacts on any primary production income averaging, farm management deposits and superannuation strategies already in place.
For further information
If you would like further information about these asset deductions for your business circumstances, please contact James Northcote, Business Advisory Manager at William Buck on (08) 8409 4333 or email firstname.lastname@example.org.
The information presented is general in nature and not to be used, relied or acted upon without seeking professional advice to ensure that the information appropriate for your individual circumstances. William Buck accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice.