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Determination DEP 81: Fertiliser storage facilities and remedial matters relating to the depreciation of buildings and grandparented structures

Note to Determination DEP 81

On 30 April 2010, the Commissioner issued Interpretation Statement 10/02 Meaning of "building" in the depreciation provisions ("IS 10/02"). IS 10/02 concluded that a building is a structure that has walls and a roof, is of considerable size, is meant to last a considerable period of time and is generally fixed to the land on which it stands. A building is a structure that can function independently of any other but is not necessarily a physically separate structure.

The effect of IS 10/02 is that some assets that were not previously regarded as buildings will now come within the meaning of "buildings". As identified in IS 10/02, these assets are:

  • Barns, including barns (drying);
  • Carparks (buildings and pads);
  • Chemical works;
  • Fertiliser works;
  • Powder drying buildings; and
  • Site huts.

Consequently, it is necessary to set new economic rates for these assets using the method applicable to "buildings" under subpart EE of the Income Tax Act 2007 ("ITA").

Consistent with IS 10/02, the asset classes "Carparks (buildings and pads)" and "Site huts" were reviewed, resulting in new asset classes being created to separate those assets that are considered "buildings" and those that are not. New economic rates have been set for those asset classes. See Determination DEP 79: Remedial matters relating to the depreciation of buildings, dated 21 October 2011.

DEP 81 sets general economic rates for the following residual assets using the formula in section EE 28 of the ITA to calculate economic rates for buildings:

  • Barns;
  • Barns (drying);
  • Chemical works;
  • Fertiliser works; and
  • Powder drying buildings.

Grandparented structures

On 30 July 2009, when the draft Interpretation Statement was released for consultation, the Minister of Revenue announced "grandparenting" provisions for certain items of depreciable property that may be affected by a finalised Interpretation Statement.

The effect of the grandparenting provisions is that despite the above listed assets now coming within the meaning of "buildings" under IS 10/02, those assets that were acquired, or a binding contract that was entered into for their purchase or construction, on or before 30 July 2009, will continue to be treated as structures for depreciation purposes. This treatment was confirmed by The Taxation (Budget Measures) Act 2010.

This determination clarifies that the existing rates continue to apply to the grandparented structures. Different rates of depreciation apply to the above listed buildings because of the varying formulae used to calculate the economic rates for "buildings" and "structures" contained in subpart EE of the Act.

Fertiliser storage facilities

In addition to the above remedial matters, the Commissioner is setting general depreciation rates for fertiliser storage facilities that are generally associated with fertiliser works, by adding a new asset class in the "Building and structures" asset category. The Commissioner considers that the fertiliser storage facilities are buildings within the definition of "building" in IS 10/02 and they have an estimated useful life of 33.3 years.

Fertiliser storage facilities are buildings at the fertiliser works used for the bulk storage of raw materials for the manufacture of fertilisers and depots (may or may not be on site of fertiliser works) used for the bulk storage of finished or partially finished fertiliser products ready for distribution. Taxpayers who own a building that is a fertiliser storage facility can depreciate that building using the rate under this determination from the 2011/12 income year.

This determination does not apply to buildings that are temporarily used as a fertiliser storage facility.

Where a relatively minor administration office area is attached to, or forms part of a fertiliser storage facility building, the Commissioner accepts that they may be treated as one asset for depreciation purposes.

This determination sets the economic rates for the asset class "Fertiliser storage facilities for the bulk storage of raw materials and fertiliser products (may or may not be at the site of fertiliser works)" acquired before 19 May 2005 and those acquired on or after 19 May 2005. Note that different rates of depreciation apply because of the different formulae used to calculate economic rates for buildings acquired before 19 May 2005 and on or after that date.


General Depreciation Determination DEP 81

1. Application

This determination applies to taxpayers who own depreciable property of the kind listed in the table below.

This determination applies from the 2011-12 and subsequent income years.

2. Determination

Pursuant to section 91AAF of the Tax Administration Act 1994 the proposed general determination will apply to the kind of items of depreciable property listed in the table below by:

  • Deleting from the "Buildings and structures" asset category the general asset classes, estimated useful lives and diminishing value and straight-line depreciation rates listed below:
Buildings and structures Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Barns 20 10 7
Chemical works 33.3 6 4
Fertiliser works 33.3 6 4
  • Deleting from the "Dairy plant" industry category the general asset class, estimated useful life and diminishing value and straight-line depreciation rates listed below:
Dairy plant Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Powder dryer buildings 15.5 13 8.5
  • Deleting from the "Cigarette Manufacturing" industry category the general asset class, estimated useful life and diminishing value and straight-line depreciation rates listed below:
Cigarette Manufacturing Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Barns (drying) 20 10 7
  • Adding into the category "Buildings and structures" asset category the general asset classes, estimated useful lives, and diminishing value and straight-line depreciation rates listed below:
Buildings and structures Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Barns, acquired on or before 30 July 2009 20 10 7
Barns, acquired after 30 July 2009 20 8.5 5
Barns (drying), acquired on or before 30 July 2009 20 10 7
Barns (drying), acquired after 30 July 2009 20 8.5 5
Chemical works, acquired on or before 30 July 2009 33.3 6 4
Chemical works, acquired after 30 July 2009 33.3 4.5 3
Fertiliser works, acquired on or before 30 July 2009 33.3 6 4
Fertiliser works, acquired after 30 July 2009 33.3 4.5 3
Powder dryer buildings, acquired on or before 30 July 2009 15.5 13 8.5
Powder dryer buildings, acquired after 30 July 2009 15.5 11 6.5
Fertiliser storage facilities for the bulk storage of raw materials and fertiliser products (may or may not be at the site of fertiliser works) (acquired before 19 May 2005) 33.3 6 4
Fertiliser storage facilities for the bulk storage of raw materials and fertiliser products (may or may not be at the site of fertiliser works) (acquired on or after 19 May 2005) 33.3 4.5 3
  • Adding into the category "Dairy plant" industry category the general asset classes, estimated useful lives, and diminishing value and straight-line depreciation rates listed below:
Dairy plant Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Powder dryer buildings, acquired on or before 30 July 2009 15.5 13 8.5
Powder dryer buildings, acquired after 30 July 2009 15.5 11 6.5
  • Adding into the category "Cigarette manufacturing" industry category the general asset classes, estimated useful lives, and diminishing value and straight-line depreciation rates listed below:
Cigarette manufacturing Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Barns (drying), acquired on or before 30 July 2009 20 10 7
Barns (drying), acquired after 30 July 2009 20 8.5 5

3. Interpretation

In this determination, unless the context otherwise requires, words and terms have the same meaning as in the Income Tax Act 2007 and the Tax Administration Act 1994.

This determination is signed on the 1st day of March 2012.

Rob Wells
LTS Manager, Technical Standards