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  • Claiming a deduction for carbon sink forest expenses

    If you're establishing a carbon sink forest, you may be eligible to claim deductions for certain expenses.

    Carbon sink forests are established to sequester carbon. Carbon sequestration is the process by which trees absorb carbon dioxide from the atmosphere.

    On this page:

    Eligibility conditions

    To be eligible to claim a deduction you need to meet the following conditions:

    • You are carrying on a business.
    • Your primary purpose for establishing the forest is carbon sequestration by the trees.
    • You did not incur the expenditure under a managed investment scheme (MIS) or a forestry MIS.
    • The trees in the carbon sink forest
      • meet certain forest characteristics
      • adhere to certain environmental and natural resource management guidelines.

    Only one business can claim a deduction for establishing a carbon sink forest on a piece of land.

    See also:

    What you can claim

    You may be able to claim for the following expenses:

    • acquiring the trees or seeds
    • pots and potting mixtures for raising tree seedlings before being permanently planted in the ground
    • grafting trees and germinating seedlings
    • allowing seeds to germinate (whether by broadcasting, deliberate regeneration or planting seeds directly)
    • preparing the area for planting
    • planting the trees or seeds
    • surveying the planted area.

    What you can't claim

    You can't claim deductions for the expenses related to:

    • purchasing the land for the forest
    • rights that allow you to access the land to establish the forest
    • the land, rather than to establishing the trees
    • draining swamps or low-lying land, or clearing land
    • assets separate from the trees, such as
      • fencing
      • water facilities for the trees
      • roads within the forest
      • fire breaks
    • other plants (for example, trees for felling or horticultural plants). However, you can deduct the expenses if the other plants are for associated purposes, such as companion planting
    • creating carbon credits to be traded in the future.

    Next steps:

    Work out how much to deduct

    You can deduct the expenses over a period of 14 years and 105 days. The period starts from the first day of the income year in which the trees are established.

    The trees are considered established when the tree seedlings are permanently planted in the ground. The tree seedlings can be either:

    • grown in pots and then transplanted to the land
    • deliberately regenerated on-site from natural seed sources.

    The expenses you can deduct are worked out as follows:

    • Establishment expenditure × write-off rate (7% per year)

    You apply this same formula for each of the first 14 years. For the 15th year (the 105 days) you deduct the remaining amount.

    If you stop using the land for carbon sequestration within the 14 years and 105 days period, you work out your deduction for that final year based on the number of days when the land was being used for carbon sequestration.

    Example

    Nativ established a carbon sink forest in September 2015. He worked out that the establishment expenses were $20,000.

    The first year he can claim a deduction is financial year 2015–16. For the first year he can claim 7% of his establishment expenditure:

    • $20,000 × 7% = $1,400

    He can claim the same amount ($1,400) for the following 13 years, as long as he continues to use the land for carbon sequestration. In the 15th year he can claim the remaining amount, which is $20,000 − ($1,400 × 14) = $400.

    End of example

    Claiming the deduction

    To claim a deduction for establishing the trees in a carbon sink forest you must complete the form Notice of establishment of trees in a carbon sink forest (NAT 72196).

    The form must be completed by whichever is the earlier date, either:

    • when you lodge your tax return
    • five months after the end of the income year.

    The completed form must include all the information we need to determine whether the deductions are eligible. This may include:

    • the ABN of your business
    • the latitude and longitude of a central point within the area occupied by the trees
    • a description of the area occupied by the trees, including the size (in hectares) and the boundary compass points that give a general outline of the perimeter
    • the species of trees established
    • the estimated number of trees per hectare
    • the reason why you think you have met the required forest characteristics
    • the expenses of establishing the trees.

    Next step:

      Last modified: 18 Jun 2019QC 19574