As sustainability takes centre stage in agriculture, many primary producers are exploring carbon farming projects as a new income stream. These projects generate Australian Carbon Credit Units (ACCUs), which provide financial incentives to encourage carbon abatement activities.
Eligible ACCUs have been treated as primary production income. Understanding its tax implications is crucial to maximising financial outcomes. A trusted tax accountant can provide the guidance needed to unlock these benefits.
What is ACCUs
Australian Carbon Credit Units (ACCUs) are issued to participants in projects registered under the Australian Carbon Credit Unit Scheme, administrated by the Clean Energy Regulator (CER).
Each ACCU represents one tonne of carbon dioxide equivalent (tCO2-e) emissions stored or avoided, and they are considered as tradeable financial product
Carbon abatement activities that may generate ACCUs include:
- Vegetation management
- Agriculture
- Forestry
- Energy consumption
- Waste
- Transport
- Industrial processes
These credits can be sold to the government or on the private market, offering primary producers both environmental and financial rewards.
Taxation of ACCUs
When eligible ACCUs are classified as primary production income, primary producers gain access to valuable tax concessions, including:
- Farm Management Deposit (FMDs): defer income in profitable years and draw on it in lean years to manage cash flow.
- Income Averaging: smooth out unusually high ACCU income over multiple years to avoid being taxed at higher rates.
- Primary Production Deductions: claim accelerated written-offs for certain farming assets and access other primary production concessions.
- Taxing Point at Disposal Only: ACCUs are only taxed when sold, avoiding tax on unrealised gains.
- Integration with Farm Tax Tools: carbon farming income can be managed just like cropping, grazing, or forestry income.
Non-eligible ACCUs will continue to be taxed under Division 420, meaning they are subject to annual revaluation and tax on unrealised gains.
Who Qualifies
Not all ACCUs qualify. To be eligible for concessional treatment, the following conditions must be met:
- Timing of Issue: ACCUs must be first hold on or after 1 July 2022.
- Connection to Primary Production Land: the project must be conducted on the land actively used in primary production.
- Entity Type: eligible for individual primary producers, including sole traders and partners in partnerships. Beneficiaries of trusts may also qualify under certain conditions. Companies, trusts, and non-primary production investors remain subject to Division 420.
Final Thoughts
The updated tax treatment of ACCUs offers primary producers certainty, fairness, and financial flexibility. By recognising ACCUs as primary production income, the government has made carbon farming a viable and sustainable income stream, complementing traditional agricultural activities.
To maximise these opportunities, ensure your ACCUs:
- are issued on and after 1 July 2022,
- are connected to land in active primary production, and
- are held by eligible individual primary producers.
At Infinity Solution Tax Plus, our experienced team endeavour to provide you with practical insights into tax policy and business opportunities. If you are seeking expert guidance to structure your tax strategies and secure your financial future with confidence, contact us today — your trusted Box Hill accountant.
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