Treasury has recently released exposure draft legislation in relation to the income tax treatment of Australian Carbon Credit Units (“ACCUs”) held by primary producers. The exposure draft proposes to treat the net proceeds from the sale of ACCUs by primary producers first held on or after 1 July 2022 as primary production income. This is good news for primary producers that use primary production averaging and farm management deposits and who are also involved in carbon farming projects.
Another significant change arising from the exposure draft is that for primary producers, the existing year-end tax accounting treatment (which requires comparing the value of ACCUs held at the start and end of income years) will no longer apply to ACCUs held on or after 1 July 2022.
Whilst these proposed changes are welcomed, there remain some major outstanding issues including:
What happens if the primary producer receives their share of the net proceeds from the carbon service provider but does not hold the ACCUs themselves?
Will these proposed changes assist with claims for capital expenditure on offsets projects under the primary production capital write-offs i.e. water facilities, land care, etc?
The draft legislation does not appear to address these issues and, on a literal interpretation, arguably would not provide relief.
It is important that these issues are carefully monitored by primary producers and their advisers. Cowell Clarke will be keeping a watching brief on the proposed changes, as well as making submissions to Treasury.
Cowell Clarke are publishers of the Australian Agribusiness Advisers’ Guide (Agri-Guide). Click here to order your copy.
For further information in relation to this topic, please get in touch with our Tax & Revenue Team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.