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Deduction for LandCare capital expenditure

Why does the deduction for Landcare expenditure need its own provision?

What is Landcare? Some History!

In the early 1990's, a government, which had been in power for some time, was looking around for an issue it could use to win an election. Their polling showed that the environment might be that issue.

For some years, an alliance between the National Farmers Federation and the Australian Conservation Foundation had been working on raising consciousness of the need to restore to good order, some of the land, which had been degraded through inappropriate farming techniques. The projects they devised, which were lumped together under the name Landcare, seemed to be just the thing to dangle in front of the electorate to rejuvenate the Government's approval ratings.

So photo opportunities of the Prime Minister crouching beside a very saline Murray River were arranged, and a swag of policies was cobbled together.

The government won the election and enacted the Commonwealth Natural Resources Management (Financial Assistance) Act 1992, the objectives of which are to facilitate the development and implementation of integrated approaches to natural resources management in Australia, which are

For the purpose of achieving efficient, sustainable and equitable management of natural resources in Australia, and consistent with the principles of ecologically sustainable development.

Promote community, industry and governmental partnership in the management of natural resources in Australia.

Assist in establishing institutional arrangements to develop and implement policies, programs and practices that will encourage sustainable use of natural resources in Australia.

Assist in enhancing the long-term productivity of natural resources in Australia.

Assist in developing approaches to help resolve conflicts over access to natural resources in Australia.

Along with grants made available to persons in rural areas to do restoration work, tax provisions were inserted into the Assessment Act for specified Landcare operations. Further details of Landcare can be found at Internet address: http://www.dpie.gov.au/agfor/landcare/org/alc.html

Some ten years later, the opposition party that had lost the aforementioned election wanted a means to make its policy of selling the government owned telephone company to private enterprise. They came up with the idea of devoting part of the proceeds of that sale to an umbrella organisation known as the National Heritage Trust, which would channel money to Landcare, along with other environmental causes. Details can be found at internet address: http://www.nht.gov.au/nht-overview.html

So Landcare should be around for some time to come!

Why does the deduction for Landcare expenditure need its own provision?

Because it is capital expenditure!

If you are not aware that section 8-1 (the general deduction provision) specifically disallows deductions for expenditure of capital or having a capital nature, you should probably look at the topic that deals with the prohibition on deductions for expenditure of a capital, private or domestic nature

Section 387-55 (1) say you can deduct capital expenditure you incur at a particular time on a landcare operation for:

(a) land in Australia you use at the time for carrying on a primary production business; or

(b) rural land in Australia you use at the time for carrying on a business for the purpose of producing assessable income from the use of that land (except a business of mining or quarrying).

There have been some similar provisions to the Landcare deductions in the 1936 Assessment Act over the years, but they generally required the costs to be amortised (or written off) over a period of years.

Section 387-55 (2) allows you to deduct the expenditure for the income year in which you incur it

There are a couple of exceptions.

Section 387-65 stops you claiming the cost of plant (you would depreciate that)

and 387-70 requires you to reduce your deduction if you stop using the land for primary production or a business using rural land

If you recoup some of the expenditure, the recoupment would be included in your assessable income under Subdivision 20-A.

What expenditure can be deducted?

Section 387-60 allows deductions for

Fence

(a)To separate different land classes in accordance with an approved management plan for the land

(b)For excluding animals from an area affected by land degradation:

(c) Constructing a levee, or a similar improvement with a similar use, on the land for the purpose of controlling salinity or assisting in drainage control

(d)Drainage works on the land, if the construction is primarily and principally for the purpose of controlling salinity or assisting in drainage control, but not an operation draining swamp or low-lying land

(e)Operation primarily and principally for the purpose of:

(i) eradicating or exterminating from the land animals that are pests; or

(ii) eradicating, exterminating or destroying plant growth detrimental to the land; or

(iii) preventing or fighting land degradation (except by erecting fences on the land)

Section 387-75 allows members of partnerships to allocate the deduction among themselves, as they see fit or in proportion to their partnership interests.