Tax Treatment of Carbon Farming Income – Johnsons MME

For many enterprises the receipt of funds from the sale of Australian Carbon Credit Units (ACCUs) can provide a significant injection of cash. However, be aware there are taxation implications attached to the cash that need to be considered before the money is spent.

Income Tax

Under the arrangements landholders have with Country Carbon Pty Ltd (Country Carbon) ACCUs are sold to the Australian Government. The money from these sales is initially paid to Country Carbon and they distribute the funds to the landholders. It is at the time the ACCU is sold to the government that the landholder’s share of the proceeds from the sale is assessable income to the landholder. For example for ACCUs sold to the government on 15 June 2016 and distributed to the landholder on 20 July 2016 the assessable income would be shown in the year ended 30 June 2016 income tax return of the landholder. This income would then be taxed at the landholder’s marginal rate of tax.

Due to the nature of this income, the Australian Taxation Office (ATO) has formed the view that any income received from the disposal of ACCUs is not considered to be income derived in relation to a primary production business, even though the ACCU may be generated from land used to conduct a primary production business. This is important to note as this may have implications on your ability to access some of the generous tax concessions available to primary production businesses such as income tax averaging or your ability to make tax effective Farm Management Deposits in a financial year in which the ACCUs are sold.

Goods & Services Tax (GST)

There is welcome relief for businesses and this relates to GST. The ATO treat the sale of ACCUs as GST Free supplies and, due to the joint venture relationship between Landholders and Country Carbon, when the ACCUs are sold to the government the landholder is essentially directly selling their share in the ACCUs. This means when the ACCU is sold the sale is a GST Free Supply, so the proceeds received are not subject to GST

If you are about to receive some funds from the sale of Carbon Credits, or have already done so, please be aware of the taxation implications that will be attached to the money. Please discuss your plans with your accountant or business advisors so they can calculate the amount of tax you will need to pay and avoid any nasty surprises come the end of the financial year.

Contributed by:

Dale Goonan | Manager, Business & Taxation Services
Johnsons MME
P 02 6023 9100

The information contained in this article is general in nature. It does not take into account your specific circumstances and should not be relied on as advice. If you would like advice specific to you circumstances please contact your accountant or business advisor. If you would like us to provide you with specific advice please contact JohnsonsMME on (02) 6023 9100.