On 6 March 2023, the Federal Government released its Exposure Draft for the Treasury Laws Amendment (Measures for Future Bills) Bill 2023: Tax accounting for primary producer registered emissions units. This is another important step to enact the suite of targeted changes to corporate tax flagged in our March 2022 Australian Federal Budget analysis.
Who can benefit from these rules?
The rules benefit those taxpayers carrying on a primary production business in the same area, or in an area connected to, the area in which the offsets project is carried on. Exclusions include incorporated farms.
More broadly, the Government intends that the proposed measures will encourage primary producers in the generation and sale of Australian Carbon Credit Units and undertake additional carbon abatement activities, helping Australia to achieve its commitment to net zero emissions by 2050.
What credits do the rules apply to?
Australian Carbon Credit Units (units issued under the Carbon Credits (Carbon Farming Initiative) Act 2011) first held on or after 1 July 2022.
What is the impact of these changes?
- Proceeds from selling Australian Carbon Credit Units and income derived from farm abatement activities in respect of Australian Carbon Credit Units, is treated as primary production income: Whereas currently proceeds from selling the Australian Carbon Credit Units or from income derived from farm abatement activities supporting Australian Carbon Credit Units is treated as non-primary production income, under the new rules, these proceeds are treated as primary production income. This means:
- the proceeds from selling Australian Carbon Credit Units or undertaking relevant abatement activities can now be subject to the favourable tax treatment under the Farm Management Deposit Scheme and no longer impacts the averaging adjustment under that Scheme (which depends on the total amount of non-primary production income)
- the proceeds and expenditure incurred in starting to hold, holding and ceasing to hold the Australian Carbon Credit Units or from arrangements with the holder of the unit in which the primary producer carries on an abatement project in relation to the unit is taken into account in determining the taxable primary production income, which in turn may make it easier to derive tax offsets.
- Taxed when sold: Currently, Australian Carbon Credit Units are taxed based on changes in the value of the units in each income year. Under the proposed rules, the Australian Carbon Credit Units will be taxed on the net gain in the year they are sold.
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