Biodiversity credits: Tax implications

Biodiversity offsetting is based on the idea that biodiversity values gained at one site will compensate for biodiversity values lost to development at another location. Landholders can generate credits to sell to developers or landholders who require those credits to securely offset their activities/obligations. Landholders can generate credits by establishing a biodiversity stewardship site on their land.

Below are some key tax implications to be aware of:

• The creation of Biodiversity Credits is a capital gains tax event in its own right. There is a formula for working out the cost base of the credits which takes into account the diminution in value of the land.

• There is then a second capital gains tax event when credits are sold to another landholder. The purchase price is subject to CGT but this can also form part of the cost base of the credits so is revenue neutral.

• If a business is eligible for small business CGT concessions, you may be precluded from accessing those concessions in relation to the land as its use to generate biodiversity credits may mean it is no longer an “active asset”.

Moreover:

• any income received under a Biodiversity Stewardship Agreement in relation to management obligations is taxable income; and

• GST will be payable on these kind of transactions

Please get in touch if you would like to know more about this scheme or advice around tax implications in relation to the sale of biodiversity credits.