Income tax: primary production: prawn farming
FOI status: May be released
Primary production is defined in section 6 of the Income Tax Assessment Act to include, among other things, fishing operations. Fishing operations are, in turn, defined to mean:-
and includes oyster farming but does not include whaling and also does not include operations conducted otherwise than for the purpose of a business.
- operations relating directly to the taking or catching of fish, turtles, dugong, crustacea or oysters or other shellfish; or
- pearling operations,
2. The question has arisen whether prawn farming constitutes primary production for income tax purposes.
3. In the particular business of prawn farming the prawns are hatched in a hatchery consisting of a number of small ponds which are under cover and lined with fibreglass over concrete. At six weeks of age, when they are two or three centimetres in length, the prawns are transferred to growing ponds where they remain for a period of four months until they reach maturity and are ready for harvesting.
4. The growing ponds vary from 2 to 5 hectares in area and may be up to 2 metres in depth measured from the top of the surrounding banks which are constructed from the soil removed to make the ponds. The ponds are filled with diluted seawater pumped through channels from a nearby river.
5. While they are in the growing ponds the prawns are fed daily by means of a moving gantry-like machine floating on the water and supported by wheels resting on the banks. At harvest time the ponds are emptied and the water returned to the river. Mature prawns carried by the out flowing water are caught in nets and sent for freezing and packing. The empty ponds are allowed to dry and are then covered by lime to clear them for the next intake of young prawns.
6. Prawn farming operations are accepted as primary
production for income tax purposes where the operations constitute the
carrying on of a business.
7. The hatchery and growing ponds, together with
their attachments and fittings, qualify as plant within the ordinary
meaning of that term in section 54 of the Act. An effective life for
the ponds has been estimated as 20 years. On this basis, a rate of
depreciation of 5% per annum on the prime cost basis or 7 1/2% per annum
on the diminishing value method would be appropriate for the ponds and
associated equipment. Notwithstanding that the ponds and associated
equipment are accepted as plant within the ordinary meaning of that
expression they are also structural improvements and for this reason
they are excluded from the special depreciation allowances available to
primary producers under section 57AH and the accelerated rates under
8. The expenditure incurred on the ponds and
associated equipment does not represent qualifying expenditure for the
purposes of section 75B of the Act. It is not expenditure incurred on
the construction, acquisition or installation of plant or structural
improvements primarily and principally for the purpose of conserving or
conveying water for use in carrying on a business of primary production.
The ponds are primarily used for the breeding and growing of prawns not
for the purpose of conserving or conveying water.
COMMISSIONER OF TAXATION
20 May 1986
NO 86/2460-7 F9
Date orig. memo issued:
DEPRECIATION - PONDS
RATE OF DEPRECIATION