Tax treatment of payments made under the Sustainable Rural Water Use and Infrastructure Program
The Budget confirms the Government’s February 2011 decision to amend the tax laws law relating to payments under the Sustainable Rural Water Use and Infrastructure Program (SRWUIP). This was in response to issues raised in stakeholder consultations and by the House of Representatives Inquiry into the impact of the Murray-Darling Basin Plan in Regional Australia., The amendments would eliminate the timing difference between when payments under SRWUIP are taxed. The amendments will be deemed to apply from 1 April 2011. Presently, while payments under the SRWUIP are taxable in the year they are received (either as income or as a subsidy or as capital gains), expenditure is deductible over three years, as it counts as water facilities used in primary production. The Government response said that a capital gains tax exemption for payments under the SRWUIP would be a part of the taxation changes; the final form of the amendments, however, would be determined in consultation with stakeholders.  The $30 million cost of the measure will be met from the SRWUIP funds so there will be no net cost.
Water for the Future—National Rainwater and Greywater Initiative—termination
As a result of lower than expected demand, the Government has terminated the National Rainwater and Greywater Initiative, saving $14.5 million over three years. This program ‘provides rebates of up to $500 towards the cost of installing rainwater tanks or new piping for greywater use, or up to $10,000 to surf life saving clubs to install a rainwater tank or as a contribution towards a larger water saving project.’ Existing committed funds will be allocated in 2010-11 and 2011-12. This means that rainwater tanks or greywater systems purchased after 10 May 2011 will not be eligible for a rebate, but householders may still apply for a rebate for systems that were purchased on or before 10 May 2011.
The termination is the third and final cut in funding to the program in the last two years. The 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO) cut $44.4 million from the funding in 2009–10 and 2010–11 and the 2010-11 Budget reduced funding a further $180 million in the 2010–11 Budget over five years to 2013-14, both due to lower than expected demand.
Applications for the National Rainwater and Greywater Initiative grants for surf life saving clubs opened on 1 October 2008 and closed on 31 January 2010 with 98 applications received and over $600,000 in funding for 79 projects approved as at May 2010.
Water for the Future—National Urban Water and Desalination Plan—reduced funding
The six year $1 billion National Urban Water and Desalination program provides grants and refundable tax offsets for water recycling, and for storm water and desalination projects in towns or cities with populations greater than 50,000.
Funding is capped at either 10 per cent of the total cost of the project or at $100 million, depending on which is the lesser amount. One-third of the total funds available has already been allocated for the construction of the Adelaide desalination plant. The funding to the Adelaide plant was increased from $100 million to $328 million in the 2009-10 Budget on the basis that the plant’s capacity would be doubled to 100 Megalitres per day.
According to Budget Paper No 2, $85.5 million will be cut from funding in 2011-12 due to lower than expected demand. The Portfolio Budget Statements forecast that $250.5 million will be allocated to the program in 2011-12 and a further $48.1 million in the final year of the program 2012-13. This appears to be in conflict with the statement in Budget Paper No 2 that $574.2 million will be provided over two years from 2011-12. It is likely that the second figure includes funding already allocated to projects but not yet spent.
The $100.0 million saved from reducing the funding for National Urban Water and Desalination Plan and ceasing the National Rainwater and Greywater Initiative will:
assist the Government to respond to challenging domestic and global economic conditions, including the impact of natural disasters.