Primary Production - Purchase of a water entitlement - Deductibility under section 8-1

Is expenditure incurred in acquiring a water entitlement to irrigate primary production property, an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. A deduction is not available under section 8-1 of the ITAA 1997 for expenditure incurred in acquiring a water entitlement to irrigate primary production property.

The taxpayer, an individual, carries on a business of primary production. The taxpayer acquired a water entitlement in the form of a licence to use a specified amount of water on a per annum basis to irrigate primary production land. It is a permanent transfer of the water entitlement.

The sum paid for the transfer of the water entitlement is a capital expense and not deductible under section 8-1 of the ITAA 1997. It is considered capital as it is a once and for all expenditure with an enduring benefit ( Sun Newspapers Ltd & Associated Newspapers Ltd v. FC of T (1938) 61 CLR 337).