ATO Interpretative Decision
ATO ID 2004/320
Income Tax
Carbon sequestration rights: deductibility of expenditure for revegetationFOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred on seedlings and fencing for the purpose of revegetating land?
Decision
No. The taxpayer, is not entitled to a deduction under section 8-1 of the ITAA 1997 for expenditure incurred in revegetating the land, as the expenditure is capital in nature.
Facts
The taxpayer is a landholder and conducts a business of cattle farming on more than 400 hectares of land.
The taxpayer has revegetated 20 hectares of land with indigenous species to encourage the return of native wildlife and ameliorate land degradation. The taxpayer has spent a significant amount of money in revegetating (that is, seedlings and fencing), with the intention of selling the carbon sequestration rights that will be generated to recover some of these costs.
The taxpayer has entered into a profit á prendre agreement with an entity for the sale of the carbon sequestration rights relating to the 20 hectares of land.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing the taxpayer's assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income.
A profit á prendre is considered to be a capital asset at common law: see, for example, Kauri Timber Co Ltd v. Comr of Taxes [1913] AC 771. Whether a profit a prendre arises is a question of fact which can only be answered by reference to the terms of the agreement entered into in each particular case.
The amount that the taxpayer receives for the sale of the carbon sequestration rights by way of a profit a prendre agreement is a capital receipt. Therefore, the outgoings in relation to the seedlings and fencing cannot be claimed as a general deduction under section 8-1 of the ITAA 1997 because they are capital in nature.
Date of decision: 5 March 2004Year of income: 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 8-1
Case References:
Kauri Timber Co Ltd v. Comr of Taxes
[1913] AC 771
ATO ID 2004/321
ATO ID 2004/322
ATO ID 2004/323
Keywords
Afforestation expenses
Carbon sequestration rights
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 5 March 2004 | Original statement |
| 11 November 2005 | Archived |