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Primary Production Assets Depreciation
All primary producers (i.e. not just those classed as small businesses) can claim depreciation of certain assets over a shorter time than was previously the case.
It is important to note that unlike the small business depreciation changes, there is no end date to these provisions. Additionally, where the changes were first proposed to commence in July 2016, they have now been bought forward to commence on 12 May 2015.
The assets in question are water facilities, fodder storage assets and fencing.
Water Facilities
Primary producers and irrigation water providers will be able to deduct expenditure on water facilities immediately in the year in which the expenditure is incurred rather than over three years as was previously the case.
A water facility is defined as:
- Plant or a structural improvement, or an alteration/addition/extension to plant or a structural improvement, that is primarily or principally for the purpose of conserving or conveying water; or
- A structural improvement, or an alteration/addition/extension to a structural improvement, that is reasonably incidental to conserving or conveying water.
Examples of water facilities include: dams, water tanks, bores, wells, irrigation channels, pipes, pumps, water towers and windmills.
Fodder Storage
Primary producers will be able to deduct expenditure on fodder storage assets over three income years. Previously, the capital expenditure would have been deductible over the effective life of the asset which could range between 10 and 50 years.
A fodder storage asset is defined as:
- An asset or a structural improvement, or an alteration/addition/extension to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder.
The term ‘fodder’ refers to food for livestock, usually dried, such as grain, hay or silage. 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.
Although a fodder storage asset will primarily be used to store food for livestock, it may also store fodder which can be used for human consumption.
Fencing Assets
Primary producers will be able to deduct expenditure on all fencing assets immediately in the year in which the expenditure was incurred. Previously, a primary producer could deduct the capital expenditure on a fence in different ways depending on what the fence was used for (which could be up to 30 years).
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.
Summary
The changes are best summarised by the following table:
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New law
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Current law
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Primary producers may deduct capital expenditure on a fodder storage asset over three years.
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Primary producers may deduct capital expenditure on a fodder storage asset over the effective life of the asset.
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Primary producers may deduct capital expenditure on a water facility in the year in which the expenditure is incurred.
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Primary producers may deduct capital expenditure on a water facility over three years.
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Primary producers may deduct capital expenditure on a fencing asset in the year in which the expenditure is incurred.
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Primary producers may deduct capital expenditure on a fencing asset over the effective life of the asset.
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