If a Renewable Energy project affects your land, you may receive compensation from the project operator for the impact on your land, your ability to use it, or lost income. This can include payments for temporary access, permanent easements and other disturbance-related matter. These payments can have different income tax and GST outcomes.
To help landholders and small businesses understand their obligations, we’ve released new guidance. The new guidance explains how income tax and GST apply to compensation payments for Renewable Energy projects.
How income tax and GST treatment is determined
The income tax treatment of a compensation payment depends on what it’s paid for, not how it’s labelled in your agreement. Most compensation amounts are assessable income. However, payments for creating a permanent easement are generally treated differently and may be subject to capital gains tax.
How you use the affected land is also important. If you use the land for a business or primary production enterprise, some compensation payments may be subject to GST, depending on your circumstances and what you’ve provided in return for the payment.
Primary production concessions
If you’re undertaking a primary production business on the property, you may also be eligible for concessions like income averaging or farm management deposits for payments that replace lost production income.
Apportioning lump sum payments
Some compensation payments may include multiple components, such as payments for lost income, temporary access, permanent easements or reimbursed costs. Each component can have a different tax outcome, so lump sum payments must be reasonably apportioned and supported by clear records.
Read the full guidance to understand how the tax rules apply to your small business’s situation, and what records you should keep.
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