As part of the Government’s COP26 pledge to reach net zero emissions by 2050 and to further encourage carbon abatement activities, a range of tax concessions are to take effect from 1 July 2022.
The tax concessions will apply to income derived by primary producers from the sale of Australian Carbon Credit Units (ACCUs) and biodiversity certificates.
Revenue from the sale of ACCUs and biodiversity certificates will now be treated as primary production income under the new tax regime, allowing access to income tax averaging and the Farm Management Deposit (FMD) scheme. This is designed to increase participation in carbon abatement and biodiversity activities and provide farmers with a diversified source of on farm income.
Previously credits were not treated as primary production income and revenue generated from their sale was excluded from these tax mitigation measures. This had the potential to make farmers reluctant to sell credits during a high-income year or to sell larger packets of credits in a single year.
Income tax averaging allows primary producers to even out their tax burden over a period of up to five years to take into consideration good and bad income years. This can offer significant tax savings and provide primary producers with greater flexibility when it comes to holding and selling credits.
The FMD scheme is designed to assist primary producers manage financial risk and meet business costs in low-income years by allowing them to set aside pre-tax income which is then available for future use when needed. A tax deduction is available when income is deposited into an FMD account and only becomes taxable in the year in which it is withdrawn.
Both these measures can offer significant tax mitigation opportunities and flexibility when it comes time to sell carbon credits.
If you are interested in hearing more about the carbon market and its applicability to your operation, please contact your usual Mazars advisor or our specialists Owen Dingle or Angela Winton for a confidential discussion via the form below or on:
All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.