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Taxation Laws Amendment Bill (No. 2) 2001
Schedule 7 Conservation covenants

   

Income Tax Assessment Act 1997

1  Section 12-5 (table)

Insert in its appropriate alphabetical position, determined on a letter-by-letter basis:

conservation covenants

 

.......................................................................................................

Division 31

2  Paragraph 25-5(1)(d)

After “30-212”, insert “or 31-15”.

3  After paragraph 26-55(1)(ba)

Insert:

                    (bb)  Division 31 (which is about deductions for conservation covenants) of this Act;

4  Section 30-320 (link note)

Repeal the link note.

5  After Division 30

Insert:

Division 31 Conservation covenants

Guide to Division 31

31-1   What this Division is about

You can deduct an amount if you enter into a conservation covenant over land that you own and you satisfy certain conditions.

The amount you can deduct is the difference between the market value of the land just before and after you enter into the covenant.

Table of sections

Operative provisions

31-5          Deduction for entering into conservation covenant

31-10        Requirements for fund, authority or institution

31-15        Valuations by the Commissioner

Operative provisions

31-5   Deduction for entering into conservation covenant

             (1)  You can deduct an amount if:

                     (a)  you enter into a * conservation covenant over land you own; and

                     (b)  the conditions set out in subsection (2) are met.

             (2)  These conditions must be satisfied:

                     (a)  the covenant must be perpetual;

                     (b)  you must not receive any money, property or other material benefit for entering into the covenant;

                     (c)  the * market value of the land must decrease as a result of your entering into the covenant;

                     (d)  one or both of these must apply:

                              (i)  the change in the market value of the land as a result of entering into the covenant must be more than $5,000;

                             (ii)  you must have entered into a contract to acquire the land not more than 12 months before you entered into the covenant;

                     (e)  the covenant must have been entered into with a fund, authority or institution that meets the requirements of section 31-10.

Note:          You must seek a valuation of the change in market value from the Commissioner: see section 31-15.

             (3)  The amount you can deduct is the difference between the * market value of the land just before you entered the covenant and its decreased market value just after that time, but only to the extent that the decrease is attributable to your entering into the covenant.

Note:          You can spread the deduction over a 5 year period: see Subdivision 30-DE.

             (4)  For the purposes of paragraph (2)(a), a covenant is treated as being perpetual even if a Minister of a State or Territory has a power to rescind it.

             (5)  A conservation covenant over land is a covenant that:

                     (a)  restricts or prohibits certain activities on the land that could degrade the environmental value of the land; and

                     (b)  is permanent and registered on the title to the land (if registration is possible); and

                     (c)  is approved in writing by, or is entered into under a program approved in writing by, the Minister for the Environment and Heritage.

31-10   Requirements for fund, authority or institution

             (1)  The fund, authority or institution:

                     (a)  must be covered by an item in any of the tables in Subdivision 30-B and must meet any conditions set out in the relevant table item; or

                     (b)  must be a public fund, or a * prescribed private fund, established under a will or instrument of trust solely for:

                              (i)  the purpose of providing money, property or benefits to a fund, authority or institution mentioned in paragraph (a) and for any purposes set out in the item of the table in Subdivision 30-B that covers the fund, authority or institution; or

                             (ii)  the establishment of such a fund, authority or institution.

             (2)  If the fund, authority or institution is not listed specifically in Subdivision 30-B, it must also:

                     (a)  be in Australia; and

                     (b)  meet the requirements of section 30-17 (about the endorsement of deductible gift recipients) or be a * prescribed private fund.

31-15   Valuations by the Commissioner

             (1)  You must seek a valuation of the change in the * market value of the land from the Commissioner for the purposes of this Division.

             (2)  The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation.

6  Section 104-5 (after the table item dealing with CGT event D3)

Insert:

D4 Entering into a conservation covenant







[See section 104-47]

when covenant is entered into

capital proceeds from covenant less cost base apportioned to the covenant

reduced cost base apportioned to the covenant less capital proceeds from covenant

7  After section 104-45

Insert:

104-47   Conservation covenants: CGT event D4

             (1)  CGT event D4 happens if you enter into a * conservation covenant over land you own.

             (2)  The time of the event is when you enter into the covenant.

             (3)  You make a * capital gain if the * capital proceeds from entering into the covenant are more than that part of the * cost base of the land that is apportioned to the covenant. You make a * capital loss if those capital proceeds are less than the part of the * reduced cost base of the land that is apportioned to the covenant.

Note:          The capital proceeds from entering into the covenant are modified if you do not receive anything for entering into the covenant: see section 116-105.

             (4)  The part of the * cost base of the land that is apportioned to the covenant is worked out in this way:

The part of the * reduced cost base of the land that is apportioned to the covenant is worked out similarly.

             (5)  The * cost base and * reduced cost base of the land are reduced by the part of the cost base or reduced cost base of the land that is apportioned to the covenant.

Example:    Lisa receives $10,000 for entering into a conservation covenant that covers 15% of the land she owns. Lisa uses the following figures in calculating the cost base of the land that is apportioned to the covenant:

                   The cost base of the entire land is $200,000.

                   The market value of the entire land before entering into the covenant is $300,000, and its market value after entering into the covenant is $285,000.

                   Lisa calculates the cost base of the land that is apportioned to the covenant to be:

Exceptions

             (6)  * CGT event D4 does not happen if:

                     (a)  you did not receive any * capital proceeds for entering into the covenant; and

                     (b)  you cannot deduct an amount under Division 31 for entering into the covenant.

Note:          In this case, CGT event D1 will apply.

             (7)  A * capital gain or * capital loss you make is disregarded if you * acquired the land before 20 September 1985.

8  Subsection 109-5(2) (after table item D3)

Insert:

D4

You enter into a * conservation covenant as a covenantee

when the covenant is entered into

9  Section 112-45 (before table item E1)

Insert:

D4

A conservation covenant is entered into over land

The total cost base and reduced cost base

104-47

10  Subsection 115-25(2) (before table item 1)

Insert:

1A

D4

the land over which the * conservation covenant is entered into

11  Section 116-25 (after table item D3)

Insert:

D4

Entering into a conservation covenant

2, 3, 4, 5

116-105

12  At the end of Division 116

Add:

116-105   Conservation covenants

                   If * CGT event D4 happens because you enter into a * conservation covenant over land you own and you can deduct an amount under Division 31 because you enter into the covenant, the * capital proceeds from the event are the amount you can deduct.

Note:          To get a deduction under Division 31, you must not receive money, property or other material benefit for entering into the covenant.

13  Subsection 136-10 (after table item D2)

Insert:

D4

Entering into a conservation covenant

the land over which the covenant is entered into

1

14  Subsection 995-1(1)

Insert:

conservation covenant has the meaning given by section 31-5.

15  Application of amendments

(1)        Subject to subitem (2), the amendments made by this Schedule apply to conservation covenants entered into on or after 15 June 2000.

(2)        The amendments made by this Schedule apply to each conservation covenant entered into on or after 1 July 2002 where the covenantor did not receive money, property or other material benefit for entering into the covenant.