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Business income tax
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Business income tax

Claiming business expenses: Capital (consumer) contributions

Capital (consumer) contributions

A payment is a capital contribution if it is, among other things made towards the costs of another person's depreciable property, if the payment is not otherwise income.

A common example is a payment from a farmer to an electricity lines company towards the cost of extending the lines network. The farmer might do this to enable a new building to be connected to the company's network.

New rules apply from 21 May 2010

From 21 May 2010 each new capital contribution must be either:

  • counted as income of the recipient (for example, the lines company), or
  • treated as a reduction in the depreciation asset base (the tax book value of the recipient's assets, for example, the new lines) by the amount of the capital contribution.

If the recipient chooses to treat the payment as reducing the asset book value, this election can't be changed.

If the payment is treated as income, the income is spread equally over 10 years.


A farmer pays an electricity lines company money towards the cost of extending the electricity lines network. The farmer does this to enable a new building to be connected to the company's network. As the work, costing $10,000 would have been uneconomic, the electricity company required a $6,000 capital contribution from the farmer to undertake the work on 1 June 2010.

If the electricity company chooses to treat the capital contribution as income, they will return 1/10 of the $6,000 capital contribution as taxable income for the next 10 years. 

This means they will return $600 extra income in their 2010-11 income year and then each year until their 2019-20 income year.

If the electricity company chooses to reduce their depreciation base, they can't claim depreciation on the electricity lines (cabling and other assets) funded by the farmer's capital contribution ( $6,000). 

This means they can only claim depreciation deductions on the $4,000 cost they had ($10,000 minus $6,000).