ATO Interpretative Decision
ATO ID 2004/321
Income Tax
Landcare operation: carbon sequestration rights - revegetation expenditure - no business being carried onFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 40-630 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 40-630 of the ITAA 1997 for expenditure incurred in revegetating the land as the expenditure is not incurred in the course of carrying on a business.
Facts
The taxpayer is a rural landholder who has revegetated 20 hectares of land with indigenous species to encourage the return of native wildlife and ameliorate land degradation. The taxpayer does not conduct a business on the land.
The taxpayer has spent a significant amount of money in revegetating, 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 a prendre agreement with an entity for the sale of the carbon sequestration rights relating to the whole of the 20 hectares of land.
Reasons for Decision
Capital expenditure on a landcare operation is deductible for the income year in which it is incurred, under section 40-630 of the ITAA 1997, provided the operation is for:
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- Australian land you use for carrying on a primary production business; or
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- rural Australian land you use for carrying on a business for a taxable purpose from the use of that land (except mining or quarrying).
The taxpayer does not satisfy either of these conditions, because their only use of the land, being the granting of an interest in the land by way of a profit a prendre agreement, does not amount to the carrying on of a business. This is because the activity lacks significant commercial purpose or character, there is no repetition or regularity in the way the activity is carried on, and there is no real intention or prospect of making a profit (see note). Therefore, a deduction is not available to the landowner under section 40-630 of the ITAA 1997.
Year of income: 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 40-630
Related Public Rulings (including Determinations)
Taxation Ruling TR 97/11
ATO ID 2004/320
ATO ID 2004/322
ATO ID 2004/323
Keywords
Carbon sequestration rights
Afforestation expenses
Environmental protection expenses
Landcare operations
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 5 March 2004 | Original statement |
| 1 April 2010 | Archived |