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Note: This document forms part of our publication GiftPack.
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What is a conservation covenant?
A conservation covenant over land is a covenant that:
- restricts or prohibits certain activities on the land that could degrade the environmental value of the land
- is permanent and registered on the title to the land – if registration is possible, and
- is approved in writing by, or is entered into under a program approved in writing by, the Minister for the Environment, Heritage and the Arts.
What are the tax concessions?
A land owner who does not receive any money, property or other material benefit for entering into a conservation covenant on or after 1 July 2002 may be eligible for:
- an income tax deduction, and
- concessional capital gains tax treatment.
A land owner who receives some capital proceeds for entering into a conservation covenant on or after 15 June 2000 may qualify for concessional capital gains tax treatment.
Income tax deduction
The covenant must be entered into with:
- a DGR
- the Commonwealth, a state, a territory or a local governing body, or
- an authority of the Commonwealth, a state or a territory.
The amount that can be deducted is the difference between the market value of the land just before entering into the covenant and its decreased market value just after that time, but only to the extent that the decrease is attributable to entering into the covenant.
The change in the market value of the land must be more than $5,000 due to the covenant. If the decrease in value of the land is less than $5,000, a deduction will be available only if the land was acquired not more than 12 months before entering into the covenant.
Donors must seek a valuation of the change in the market value of the land from the Tax Office.
The deduction cannot add to or create a tax loss. However, donors can elect to spread the deduction over a period of up to five years.
Concessional capital gains tax treatment
The capital gains tax (CGT) concessions provide comparable treatment between land owners who enter into conservation covenants and land owners who sell part of their land. In other circumstances where rights are created over an asset, almost all of the capital proceeds are treated as a capital gain.
Donors who enter into a conservation covenant calculate their capital gain by comparing capital proceeds from the grant of the covenant with a portion of the cost base of the entire land over which the covenant is granted.
Similarly, a capital loss is calculated by comparing capital proceeds from the grant of the covenant with a portion of the reduced cost base of the entire land over which the covenant is granted.
If entitled to an income tax deduction, the capital proceeds from the event are equal to the amount that can be deducted.
Capital gains made from entering into a conservation covenant may qualify for:
- pre-CGT exemption, if the land was acquired before 20 September 1985
- the CGT discount, if the land was owned for at least 12 months before the grant of the conservation covenant
- the small business CGT concessions, if the land is an active asset.
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More information
Refer to our fact sheet Conservation covenant concessions (NAT 6539).
To obtain this publication, see More information.
You can also contact the Department of the Environment, Water, Heritage and the Arts at:
The Secretary
Department of the Environment, Water, Heritage and the Arts
GPO Box 787
CANBERRA ACT 2601
Phone: (02) 6274 2784
Fax: (02) 6274 1332
Website: www.environment.gov.au
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Last Modified: Monday, 11 February 2008
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