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ATO Interpretative Decision

ATO ID 2002/678

Income Tax
Division 31 - 'material benefit' for entering into a conservation covenant

FOI status: may be released
Status of this decision: Decision Current

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Can a taxpayer, a landowner who enters into a conservation covenant, be entitled to an income tax deduction under Division 31 of the Income Tax Assessment Act 1997 (ITAA 1997) where it benefits because of the covenant?


Yes, a deduction will be allowable - provided the other requirements of Division 31 are met - if the benefits received are not money, property or other material benefits provided for entering into the covenant.


An entity has entered into a conservation covenant with a deductible gift recipient (DGR). The land is owned by the entity.

The DGR has paid for all administrative costs for the covenant. It has also reimbursed the landowner's legal costs for the covenant. At the time of the covenant, the landowner and the DGR also entered into a management agreement. Under the agreement, the DGR provides advice, expertise and services in relation to the covenanted land.

The landowner receives a fencing grant under a government program for land subject to conservation covenant. The local government rates payable by the landowner on the covenanted land are lowered because of the covenant.

The landowner entered into the covenant to improve the saleability of other land it is developing on the other side of the road. The value of the developed land has increased because of the covenant.

Reasons for Decision

An income tax deduction is allowable to a landowner for entering into a conservation covenant over its land where the conditions of Division 31 of the ITAA 1997 are met. These conditions include that the landowner 'must not receive any money, property or other material benefit for entering into the covenant' (paragraph 31-5(2)(b) of the ITAA 1997).

While the landowner has benefited from the lower rates and the fencing grant, they were not received 'for entering into the covenant'. It is not enough that a conservation covenant is merely prerequisite to receiving an otherwise unrelated benefit. Accordingly, the rate reduction and fencing grant do not prevent a deduction under Division 31.

Any increase in the value of the land on the other side of the road is not a 'material benefit for entering into the covenant'. While there has been an increase in the value of the other land because of the covenant, this is not sufficient to conclude that a material benefit has been received for entering into the covenant. Also, the landowner's motive of improving the saleability of the other land does not prevent a deduction. A philanthropic or altruistic motive or intention is not a requirement for deduction under Division 31.

Any benefit to the landowner from the DGR under the management agreement is too remote from the covenant. The advice, expertise and services are not 'for entering into the covenant'. Accordingly, they do not prevent deduction under Division 31. On the facts, the agreement was not made pursuant to a non-arms' length arrangement between the landowner and the DGR to disguise consideration for the covenant.

The meeting or reimbursing of the legal and administrative costs by the DGR is not considered to preclude deduction under Division 31.

[ Note: the allowing of a deduction under Division 31 can also have implications for the capital proceeds for CGT event D4 under section 104-47 of the ITAA 1997.]

Date of decision: 26 June 2002

Year of income:Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Division 31

Gifts & donations
Conditional gifts
Deductible gift recipients
Gifts to organisations
Heritage conservation rebates

Siebel/TDMS Reference Number: CRS77227, 1-5P4E5F5; 1-BRFUDEI

Business Line: Private Groups and High Wealth Individuals

Date of publication: 3 July 2002
Date reviewed: 28 June 2017

ISSN: 1445-2782


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