Income tax: where a horticulture business buys plants from a nursery and has the nursery maintain them prior to delivery, can the costs of buying and maintaining the plants be deductible under Division 10F of Part III of the Income Tax Assessment Act 1936?

Yes. The costs - both purchase and maintenance - form 'establishment expenditure' under section 124ZZJ and may be deductible under Division 10F.

Establishment expenditure is either deductible in full under section 124ZZF (for plants with an effective life of less than 3 years) or over a period under section 124ZZG (for plants with a longer effective life).

However, where the plants merely replace those from an existing plantation due to disease or death, the costs will be deductible under section 8-1 of the Income Tax Assessment Act 1997 : see Taxation Determination TD 97/D7. Example 4. Jill carries on a business from her orchard. To expand her orchard she contracts with a local nursery to buy 2,000 seedlings. The total price will be $10,000. This is allocated by the contract as $2,000 for seedlings and $8,000 for care and maintenance over four months. The nursery is to deliver the seedlings at the end of the four months. 5. The full cost of $10,000 is establishment expenditure. The amount of the deduction each year will depend on the effective lives of the plants and when the plants begin what is expected to be their first commercial season.

If you wish to comment on this draft Determination, please send your comments by 24 October 1997 to: Contact officer details have been removed following publication of the final determination.