Money
Issue No. 30 - August/September 2006
Tax tip on carbon credit iceberg
by John Rawson
In recent years there has been a move to create a market for trading in carbon as a cost-effective method for reducing greenhouse gas emissions both in Australia and overseas.
But as people become increasing excited about the possibilities in carbon trading, and as trading increases exponentially both in Australia and worldwide, there is a danger that the tax implications of carbon trading will be overlooked.
Broadly, carbon trading is a system of issuing carbon credits for afforestation and reforestation activities of forest growers or farmers. These credits can then be sold or traded to entities that emit greenhouse gases as part of their business to ‘offset’ their emissions.
An Australian-based grower could sell to entities in Australia or overseas.
While Australia does not have a national carbon credit trading system, a number of states in Australia, including South Australia, have recognised carbon sequestration rights (carbon credits) as property.
Carbon credits recognise the right of ownership to carbon sequestered in vegetation on an area of land. In many states this ownership can be registered on the title to the land.
Already there have been a number of instances of Australian, multi-national and foreign companies with large greenhouse emissions investing in or buying carbon sequestered in vegetation in Australia.
A number of federal and state government tax considerations must be considered when looking at investing in carbon sequestration or trading carbon credits.
Income tax
One of the most important considerations in relation to carbon trading is the treatment of the original costs. The income derived from sales may be on capital or revenue account.
For the grower making a capital investment, generally the cost of planting trees will not be immediately deductible and must be ‘depreciated’ over the life of the trees.
Therefore, when the carbo...
