ATO ID 2002/110: Capital Allowances: Landcare operation - shed
Date of decision: 24 December 2001
Year of income: Year ending 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is construction of a shed, a landcare operation under subparagraph 40-635(1)(e)(iii) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The construction of a shed is not a landcare operation under subparagraph 40-635(1)(e)(iii) of the ITAA 1997.

Facts
The taxpayer operates a produce farm. The taxpayer is proposing to construct a shed on the property for the purpose of storing produce that has been harvested when soil and weather conditions are favourable. This will minimise the adverse effect on the soils caused by heavy machinery compacting those soils during a forced harvest under adverse conditions. Without adequate storage facilities, there is a very real risk that crops may not be harvested and the land is at great risk of erosion and further degradation through uncontrolled weed infestation.

Reasons for decision
Summary: Section 40-630 of the ITAA 1997 allows a deduction for capital expenditure incurred in a year of income on a landcare operation, to be allowed as a deduction, the capital expenditure must be on a landcare operation as set out under section 40-635 of the ITAA 1997. In particular, subparagraph 40-635(1)(e)(iii) of the ITAA 1997 states: '(e) an operation primarily and principally for the purpose of: ... (iii) preventing or fighting land degradation (except by erecting fences on the land); ...' This subparagraph requires that the operation be primarily and principally for the purpose of preventing or fighting land degradation. The meaning of primarily and principally in this context is explained in Taxation Determination TD 94/9. Paragraph 3 of that taxation determination states, 'Where the expenditure is incurred for a dual purpose, the 'primarily and principally' test does not require a consideration of the subjective or objective purpose or motives of the taxpayer in incurring the expenditure. The test requires an examination of the primary and principal function or purpose of the result produced by incurring the expenditure.' The construction of a shed will enable the taxpayer to store produce. This will allow the taxpayer to harvest when soil and weather conditions are favourable. This may eliminate forced harvesting under adverse conditions where heavy machinery severely compacts and erodes the soil and prevents timely cultivation and planting of erosion control crops. The primary or principal purpose of the shed is to be used as a facility to store produce. The use of the shed may enable the taxpayer to harvest the crops in more favourable conditions and may indirectly assist in the elimination of soil erosion. However, the shed itself does not prevent or fight land degradation. In summary, the construction of the shed is not an operation primarily and principally for the purpose of preventing or fighting land degradation.

Legislative references: Income Tax Assessment Act 1997 Section 40-630 Paragraph 40-635(1)(e) subparagraph 40-635(1)(e)(iii)
Related public rulings and determinations: TD 94/9
Subject references: Uniform capital allowances system Fixture on land Improvement to land Primary production expenses Soil conservation expenses