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Tax Laws Amendment (2008 Measures No. 2) Bill 2008

Schedule 8 Capital expenditure for the establishment of trees in carbon sink forests

Part 1 Income years 2007-08 to 2011-12

Income Tax Assessment Act 1997

1  Section 12-5 (table item headed “capital allowances”)

After:

telecommunications site access rights ............................

Subdivision 40-B

insert:

trees in carbon sink forests ...............................................

Subdivision 40-J

2  Section 12-5 (after table item headed “travel expenses”)

Insert:

trees in carbon sink forests

 

see capital allowances

 

3  Section 40-10 (at the end of the table)

Add:

2.4

Capital expenditure for establishing trees in carbon sink forests

You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests.

Subdivision 40-J

4  Subsection 40-50(1)

Omit “or 40-G (about capital expenditure of primary producers and other landholders)”, substitute “, 40-G (about capital expenditure of primary producers and other landholders) or 40-J (about capital expenditure for the establishment of trees in carbon sink forests)”.

5  After subsection 40-630(2B)

Insert:

Exception: deduction available under Subdivision 40-J

          (2C)  You cannot deduct an amount under this Subdivision for capital expenditure if any entity can deduct an amount for that expenditure for any income year under Subdivision 40-J.

6  At the end of Division 40

Add:

Subdivision 40-J Capital expenditure for the establishment of trees in carbon sink forests

Guide to Subdivision 40-J

40-1000   What this Subdivision is about

You can deduct amounts for capital expenditure incurred for establishing trees that meet the requirements for constituting a carbon sink forest.

Table of sections

Operative provisions

40-1005    Deduction for expenditure for establishing trees in carbon sink forests

40-1010    Expenditure for establishing trees in carbon sink forests

40-1015    Carbon sequestration by trees

40-1020    Certain expenditure disregarded

40-1025    Non-arm’s length transactions

Operative provisions

40-1005   Deduction for expenditure for establishing trees in carbon sink forests

             (1)  You can deduct an amount for an income year if:

                     (a)  you incur capital expenditure that is covered under section 40-1010 in relation to particular trees established in the income year; and

                     (b)  you satisfy a condition in subsection (5) for the trees when they are established.

             (2)  The amount of the deduction is the amount of the expenditure.

             (3)  You can deduct an amount for an income year if:

                     (a)  you incur capital expenditure in the income year or an earlier income year for establishing particular trees; and

                     (b)  that expenditure is not covered under section 40-1010 in relation to the trees, because some or all of the trees are established after the end of the income year; and

                     (c)  the trees established after the end of the income year are established within 4 months after the end of the income year; and

                     (d)  you could deduct the amount for the income year under subsection (1) in respect of the expenditure, assuming that, for the purposes of paragraphs 40-1010(1)(a) and (2)(a), the income year ended 4 months after it actually ended.

             (4)  If:

                     (a)  you can deduct an amount for an income year under subsection (3) in relation to particular trees; and

                     (b)  you incur capital expenditure in the next income year for establishing other trees;

in determining whether you can deduct an amount under subsection (1) for the next income year in respect of the other trees, for the purposes of paragraph 40-1010(2)(a), disregard the trees mentioned in paragraph (a).

             (5)  The conditions are as follows:

 

Conditions for deduction for establishing trees in carbon sink forest

Item

Condition

1

You own the trees and any holder of a lease, lesser interest or licence relating to the land occupied by the trees does not use the land for the primary and principal purpose of * carbon sequestration by the trees.

2

The trees occupy land you hold under a lease, or a * quasi-ownership right granted by an * exempt Australian government agency or an * exempt foreign government agency, and:

(a) the lease or quasi-ownership right enables you to use the land for the primary and principal purpose of * carbon sequestration by the trees; and

(b) any holder of a lesser interest or licence relating to the land does not use the land for the primary and principal purpose of carbon sequestration by the trees.

3

You:

(a) hold a licence relating to the land occupied by the trees; and

(b) use the land for the primary and principal purpose of * carbon sequestration by the trees, as a result of holding the licence.

40-1010   Expenditure for establishing trees in carbon sink forests

             (1)  Expenditure is covered under this section in relation to particular trees if:

                     (a)  the trees are established in an income year; and

                     (b)  you incur the expenditure in the income year or an earlier income year for establishing the trees; and

                     (c)  you are carrying on a * business in the income year; and

                     (d)  your primary and principal purpose for establishing the trees is * carbon sequestration by the trees (see section 40-1015); and

                     (e)  your purposes for establishing the trees do not include any of the following:

                              (i)  felling the trees;

                             (ii)  using the trees for * commercial horticulture; and

                      (f)  you do not incur the expenditure under:

                              (i)  a * managed investment scheme; or

                             (ii)  a * forestry managed investment scheme; and

                     (g)  all of the conditions in subsection (2) are satisfied for the trees; and

                     (h)  you give the Commissioner, in accordance with subsection (4), a statement that:

                              (i)  sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and

                             (ii)  is in the * approved form.

             (2)  The conditions are as follows:

                     (a)  at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more;

                     (b)  at the time the trees are established, it is more likely than not that they will:

                              (i)  attain a crown cover of 20% or more; and

                             (ii)  reach a height of at least 2 metres;

                     (c)  on 1 January 1990, the area occupied by the trees was clear of other trees that:

                              (i)  attained, or were more likely than not to attain, a crown cover of 20% or more; and

                             (ii)  reached, or were more likely than not to reach, a height of at least 2 metres;

                     (d)  the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3).

             (3)  The * Climate Change Minister must, by legislative instrument, make guidelines about environmental and natural resource management in relation to the establishment of trees for the purposes of * carbon sequestration.

             (4)  The statement mentioned in paragraph (1)(h) is to be given to the Commissioner no later than:

                     (a)  if you lodge your * income tax return for the income year within 5 months after the end of the income year—the day you lodge that income tax return; or

                     (b)  otherwise—5 months after the end of the income year.

             (5)  However, expenditure is not covered under this section if the * Climate Change Secretary gives the Commissioner a notice under subsection (6) in relation to the trees.

             (6)  The * Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees.

             (7)  A person may apply to the * AAT for review of a decision (as defined in the Administrative Appeals Tribunal Act 1975 ) of the * Climate Change Secretary to give a notice under subsection (6).

             (8)  The Commissioner may give the * Climate Change Secretary a copy of the statement mentioned in paragraph (1)(h), for the purposes of subsections (5), (6) and (7).

40-1015   Carbon sequestration by trees

                   Carbon sequestration by trees means the process by which trees absorb carbon dioxide from the atmosphere.

40-1020   Certain expenditure disregarded

                   In working out a deduction under this Subdivision in relation to the establishment of trees, disregard expenditure incurred:

                     (a)  in draining swamp or low-lying land; or

                     (b)  in clearing land.

40-1025   Non-arm’s length transactions

                   If an entity incurred capital expenditure under an * arrangement and:

                     (a)  there is at least one other party to the arrangement with whom the entity did not deal at * arm’s length; and

                     (b)  apart from this section, the amount of the expenditure would be more than the * market value of what it was for;

the amount of expenditure taken into account under this Subdivision is that market value.

7  After subsection 70-120(5)

Insert:

No deduction for carbon sink forests

          (5A)  You cannot deduct under this section so much of an amount you paid or incurred as is attributable to the establishment of trees for which any entity has deducted, or can deduct, an amount for any income year under Subdivision 40-J.

8  Subsection 995-1(1)

Insert:

carbon sequestration has the meaning given by section 40-1015.

9  Subsection 995-1(1)

Insert:

Climate Change Minister means the Minister administering the National Greenhouse and Energy Reporting Act 2007 .

10  Subsection 995-1(1)

Insert:

Climate Change Secretary means the Secretary of the Department that administers the National Greenhouse and Energy Reporting Act 2007 .

11  Application

The amendments made by this Part of this Schedule apply to the 2007-08 income year and later income years.

 



 

Part 2 Income year 2012-13 and later income years

Income Tax Assessment Act 1997

12  Subsections 40-1005(1), (2), (3) and (4)

Repeal the subsections, substitute:

             (1)  You can deduct an amount for an income year if:

                     (a)  you or another entity incurred capital expenditure that is covered under section 40-1010 in relation to particular trees; and

                     (b)  you satisfy a condition in subsection (5) for the trees for at least part of the income year; and

                     (c)  you are carrying on a * business in the income year; and

                     (d)  you use the land occupied by the trees for the primary and principal purpose of * carbon sequestration by the trees (see section 40-1015); and

                     (e)  your purposes in using the land occupied by the trees do not include any of the following:

                              (i)  felling the trees;

                             (ii)  using the trees for * commercial horticulture; and

                      (f)  you do not use the land in connection with:

                              (i)  a * managed investment scheme; or

                             (ii)  a * forestry managed investment scheme.

             (2)  The amount of the deduction is worked out under this formula:

where:

establishment expenditure is the amount of expenditure mentioned in subsection (1).

write-off days in income year is the number of days in the income year:

                     (a)  that occur within the period:

                              (i)  starting on the first day of the income year in which the trees are established; and

                             (ii)  ending 14 years and 105 days after that day; and

                     (b)  on which you use the land occupied by the trees for the primary and principal purpose of * carbon sequestration by the trees; and

                     (c)  on which you satisfy a condition in subsection (5) for the trees.

write-off rate is 7%.

             (3)  You cannot deduct more in total than the amount of capital expenditure incurred for establishing the trees up to the time at which they are established.

13  Paragraph 40-1010(1)(b)

After “you incur”, insert “or another entity incurs”.

14  Paragraph 40-1010(1)(c)

Omit “you are”, substitute “the entity incurring the expenditure (the establishing entity ) is”.

15  Paragraph 40-1010(1)(d)

Omit “your”, substitute “the establishing entity’s”.

16  Paragraph 40-1010(1)(e)

Omit “your”, substitute “the establishing entity’s”.

17  Paragraph 40-1010(1)(f)

Omit “you do”, substitute “the establishing entity does”.

18  Paragraph 40-1010(1)(h)

Omit “you give”, substitute “the establishing entity gives”.

19  Paragraph 40-1010(4)(a)

Repeal the paragraph, substitute:

                     (a)  if the establishing entity lodges its * income tax return for the income year within 5 months after the end of the income year—the day the establishing entity lodges that income tax return; or

20  At the end of Subdivision 40-J

Add:

40-1030   Extra deduction for destruction of trees in carbon sink forest

             (1)  You can deduct the amount worked out under subsection (2) for an income year if:

                     (a)  you or another entity incurred capital expenditure that is covered under section 40-1010 in relation to particular trees; and

                     (b)  you use the land occupied by the trees for the primary and principal purpose of * carbon sequestration by the trees; and

                     (c)  the trees are destroyed during the income year; and

                     (d)  you satisfy a condition in subsection 40-1005(5) for the trees just before they are destroyed.

             (2)  Work out the amount of the deduction as follows:

Method statement

Step 1.   Work out the total of the amounts you could have deducted under this Subdivision in relation to the trees for the period:

                   (a)     starting on the first day of the income year in which the trees are established; and

                   (b)     ending when the trees were destroyed;

              assuming that, during that period, you satisfied a condition in the table in subsection 40-1005(5).

Step 2.   Subtract from the expenditure that is covered under section 40-1010 in relation to the trees:

                   (a)     the result from step 1; and

                   (b)     any amount you received (under an insurance policy or otherwise) for the destruction.

              The remaining amount (if positive) is your deduction under subsection (1).

             (3)  This deduction is in addition to any deduction for the income year under section 40-1005.

40-1035   Getting information if you acquire a carbon sink forest

             (1)  This section applies if:

                     (a)  you or another entity incurred capital expenditure; and

                     (b)  the expenditure is covered under section 40-1010 in relation to particular trees; and

                     (c)  you begin to satisfy a condition in the table in subsection 40-1005(5) for the trees.

             (2)  You may give the last entity (if any) that satisfied a condition mentioned in subsection 40-1005(5) for the trees a written notice requiring the entity to give you any or all of the following information:

                     (a)  the amount of the expenditure covered under section 40-1010 in relation to the trees;

                     (b)  the income year in which the trees were established.

             (3)  The notice must:

                     (a)  be given within 60 days of your beginning to satisfy the condition mentioned in paragraph (1)(c); and

                     (b)  specify a period of at least 60 days within which the information must be given; and

                     (c)  set out the effect of subsection (4).

Note:          Subsections (5), (6) and (7) explain how this subsection operates if the entity to which the notice is to be given is a partnership.

Requirement to comply with notice

             (4)  The entity to whom the notice is given must not intentionally refuse or fail to comply with the notice.

Penalty:  10 penalty units.

Giving the notice to a partnership

             (5)  If the entity to whom the notice is given is a partnership:

                     (a)  you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and

                     (b)  the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them.

             (6)  A partner must not intentionally refuse or fail to comply with that obligation.

Penalty:  10 penalty units.

             (7)  Subsection (6) does not apply if another partner has already complied with that obligation.

Note:          A defendant bears an evidential burden in relation to the matters in subsection (7), see subsection 13.3(3) of the Criminal Code .

Limits on giving a notice

             (8)  Only one notice can be given in relation to the same trees.

21  Application

The amendments made by this Part of this Schedule apply to the 2012-13 income year and later income years.