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Tax Laws Amendment (2008 Measures No. 2) Act 2008 (38 of 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

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.


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