THE Federal Government is hoping to make tax changes to allow Australian Carbon Credit Units to be classified as farm income.
Currently, primary producers who sell ACCUs cannot treat the income as primary production income and therefore cannot use it in Farm Management Deposits or for income tax averaging. Holders of ACCUs are taxed based on changes in the value each year.
However, a bill was introduced to Parliament last month to make changes to the way they are taxed – allowing them to be used in FMDs and only taxing them when they are sold. It was introduced to the Senate this week and is awaiting approval.
Former agriculture minister David Littleproud made the proposal to classify credits as farm income before the Coalition was voted out of Government. It was welcomed by both the agriculture and carbon industries at the time.
The current government says making ACCUs farm income for tax purposes was a key part of its plans to reach net zero emissions by 2050.
“This new tax incentive will encourage primary producers to diversify their income by generating and selling ACCUs and supporting the creation of such units, as it helps to balance out other fluctuations in income derived from farming,” the bill says.
“Deferring the taxation point until the point of sale for eligible individual primary producers also benefits the cash flow position of primary producers, encouraging more primary producers to increase their carbon abatement activities.
“Targeted support to primary producers will further incentivise more carbon abatement projects in the agricultural sector and drive investment in regional communities, while helping Australia achieve its commitment to net zero emissions by 2050.”
The bill says the law will apply to most of the common agreements between carbon service providers and landholders.
“An eligible primary producer may enter an arrangement with a carbon service provider to undertake carbon abatement activities, which results in the carbon service provider being issued ACCUs.
“The proceeds that the primary producer receives from the carbon service provider as part of this arrangement, whether it be a regular payment or proceeds from the sale of the ACCUs, are considered assessable primary production income.
“Furthermore, if the carbon service provider provides the primary producer with ACCUs directly as part of their commercial agreement, these ACCUs (and proceeds from the sale of these Australian carbon credit units) are also considered assessable primary production income.”
One of the main omissions from the tax concessions is when land is leased for a carbon project, it will be included as property income rather than primary production income.