The states and territories have enacted legislation to enable the trading of water rights. Generally, there are capital gains tax (CGT) and/or general taxation consequences from the sale, transfer or ending of water licences, allocations, quotas or entitlements.
Water rights, such as licences and water allocations are CGT assets. The permanent trade of a water right constitutes the disposal of a CGT asset. A temporary trade of these rights also constitutes a CGT event - exactly which CGT event will depend on the facts of each case and the rules governing the trade. Whether there are general income tax consequences as a result of a water trade also depends on your particular circumstances. If you are uncertain, write to the ATO and request a private ruling on how the tax laws apply to your situation.