Tax incentives for conservation
Thanks to changes to taxation legislation, increasing numbers of Australians are receiving financial benefits from donations to assist in conserving Australia's environment and heritage.
For example, with the Australian Government's changes to the Income Tax Assessment Act 1997, taxpayers now benefit from donations of property valued at more than $5000 to relevant organisations.
Changes to the Capital Gains Tax treatment of payments for entering into conservation covenants, and the conservation covenant deduction measure legislated in October 2001, provide further complementary incentives for conservation.
Donations
Under initiatives legislated in May 2000, you and the environment can benefit from:
- An income tax deduction for gifts of property, made on or after 1 July 1999, valued at more than $5000. The deduction is available regardless of when or how the property was acquired and the deductions can be spread over five years.
- A Capital Gains Tax exemption for gifts of property bequeathed in a will to an eligible organisation.
What are the benefits?
These measures are aimed at encouraging donations of property to eligible environmental bodies. Donors benefit from the capacity to claim tax deductions on the donation.
Deductions may be apportioned over up to five years so that tax benefits are not lost when a donor's income in a single year is less than the value of the gift. (Note: a deduction under this provision can not result in an income tax loss.)
This is particularly important for donors who are asset rich but on low incomes. For example, a gift of land worth $100,000 can be split into five deductions of $20,000 and claimed over five subsequent years, allowing greater tax deductions to be claimed, particularly for those whose incomes are less than the value of the donation.
Who can claim a deduction?
Any taxpayer (for example, an individual, trust, or company) can claim a deduction for a donation of property and seek apportionment of tax deductions. However, other regulations such as company and trust laws/legislation may impact on the ability of an entity to make a donation of property.
What type of property can be donated?
Land, buildings, shares, vehicles, machinery etc valued at over $5000 by the Commissioner of Taxation may be donated.
Who are the eligible environmental bodies?
An eligible environmental body is one that is on the Register of Environmental Organisations (the Register). The Register was established in 1992 to remove the need for amendments to the tax law every time an environmental organisation was granted tax-deductible status. Entry on the Register allows an environmental organisation to seek tax deductible donations.
What are the steps involved?
For gifts or donations made on or after 1 July 1999:
- Donors must obtain a valuation of the property from the Commissioner of Taxation through the Australian Valuation Office. The Office charges a fee for valuations, which is tax deductible.
- Applicants seeking to apportion a deduction over a number of years must fill in the apportionment of deductions form and send a copy to the Secretary of the Environment Department. On this form, taxpayers must state how much of the deduction they will claim in each year over a period up to five years. This statement can be varied at any time. Forms are also available on the internet at www.environment.gov.au/about/tax/apportionment.html
Is your group eligible for the Register of Environmental Organisations?
It is in an environmental organisation's best interest to obtain deductible gift recipient status so that donors can take advantage of the new tax initiatives.
For information contact the Register of Environment Organisations (see below) or visit www.environment.gov.au/about/tax/reo
Conservation covenants
In October 2001, the Government amended the deduction and Capital Gains Tax provisions of the tax law in relation to entering into a perpetual conservation covenant.
The amendments provide for two types of tax concession:
- an income tax deduction for any decrease in land value as a result of entering into a conservation covenant (provided the landowner receives no payment for entering into it); and,
- where a conservation covenant is entered into, Capital Gains Tax provisions will apply as if it were a sale or gift of the land.
The tax deduction will be available from 1 July 2002, whereas the new Capital Gains Tax provisions have been backdated to 15 June 2000 (where the landowner receives money or property for entering into the conservation covenant) in order to cover payments made under the Tasmanian Private Forest Reserve Program.
For those landowners who do not receive any money or property for entering into a conservation covenant but are not eligible for the deduction, the current Capital Gains Tax provisions remain in place to ensure they are not disadvantaged.
Conservation covenant deduction
To qualify for a deduction, a conservation covenant must:
- be in perpetuity and, where possible, attached to the title of the land;
- be approved by the Environment Minister (either directly or through being part of an approved conservation covenant program);
- result in a loss of market value of more than $5000 (or be attached to land acquired less than 12 months before the covenant was attached); and
- be entered into with a deductible gift recipient or the Commonwealth, a State, a Territory or local governing body or an authority of the Commonwealth, a State or a Territory.
A landowner will not be eligible for a deduction if they have received any money, property or other material benefit in return for entering into a conservation covenant. Landowners will need to have the decrease in market value of their land, and hence the amount of the deduction, determined by the Australian Valuation Office. The Office may charge a fee for this service, which is tax deductible. Landowners will be able to spread the value of the deduction over five years using the process outlined above.
To avoid disappointment, before entering into a conservation covenant, landowners should confirm that the proposed holder of a conservation covenant is an eligible organisation and the program of conservation covenanting is one approved by the Australian Government Environment Minister. To determine if the proposed holder of a conservation covenant is an eligible organisation you can call the Australian Taxation Office on 13 28 61 or contact the Register of Environment Organisations (see contact below). To find out if the program of conservation covenanting is one approved by the Australian Government Environment Minister call the Department on (02) 6274 1036.
Where a landowner is eligible to claim a deduction for granting a conservation covenant, the Capital Gains Tax provisions (below) will apply.
Capital Gains Tax changes
The Capital Gains Tax provisions have been changed in relation to conservation covenants.
The Capital Gains Tax treatment applies where a landowner:
- receives money or property for granting a conservation covenant; or
- is eligible for a tax deduction under the conditions described above.
In both cases, the covenant has to be entered into as part of an approved conservation covenant program or approved directly by the Enviornment Minister.
Conservation covenants which are not eligible for the new treatment will be treated in the same way they were before – that is, a capital gain will arise equal to the difference between the money and/or property received and the costs incurred in granting the covenant. If no money or property is received, a capital loss equal to the costs incurred in granting the covenant will arise.
What are the benefits?
For the case where a landowner receives money or property for granting a conservation covenant, the following benefits apply. The Capital Gains Tax treatment will result in a reduced capital gain because a portion of the cost base of the land is taken into account in working out the capital gain (previously the capital gain equalled the amount received for the covenant less incidental costs).
Landowners are also able to access any Capital Gains Tax concession or exemption that may apply to the capital gain. For example, a capital gain from a covenant granted in respect of land owned before 20 September 1985 will now be exempt.
In addition the Capital Gains Tax discount may now apply if the land has been owned for at least 12 months or the small business concessions may apply if the relevant conditions are satisfied.
How does it work?
The Capital Gains Tax changes recognise that, economically, the landowner has suffered some loss in the value of his/her land by entering into the conservation covenant. Therefore, when determining the amount of a capital gain from the grant of a conservation covenant, a portion of the cost base of the land will now be taken into account.
This treatment is equivalent to that applied to the sale of part or all of the land or, in some cases, the removal of trees from the land.
The Department has developed guidelines and procedures for the approval of covenanting programs. Guidelines are available at: www.environment.gov.au/biodiversity/incentives/covenants-guidelines.html
The guidelines describe the elements required to be met for conservation covenanting programs to gain approval by the Minister for the Environment. Approval procedures are also documented.
Please direct any queries in relation to approval to the Department officers listed below.
Contacts for more information
| Area of interest | Contact |
|---|---|
| Conservation Covenants |
Department of Sustainability, Environment, Water, Population and Communities
Australian Taxation Office |
| Register of Environmental Organisations | Department of Sustainability, Environment, Water, Population and Communities Administrator Register of Environmental Organisations Department of Sustainability, Environment, Water, Population and Communities GPO Box 787, Canberra, ACT, 2601 Phone: (02) 6274 1467 Fax: (02) 6274 1858 Email: reo@environment.gov.au Web: www.environment.gov.au/tax |
| Valuation of property | Australian Valuation Office Phone: 1300 286 286 Fax: (02) 6216 1990 Email: info@avo.gov.au |
| Taxation legislation |
The Income Tax Assessment Act 1997 can be viewed at www.comlaw.gov.au The Explanatory Memorandum to the conservation covenant provisions can be viewed at law.ato.gov.au/atolaw/view.htm?docid=NEM/SM200118/NAT/ATO/00003 |
| Apportionment of deductions | Information and forms can be obtained on the Internet at: www.environment.gov.au/tax/ Alternatively, you can contact the Department of Sustainability, Environment, Water, Population and Communities to ask for a form to be sent to you: Phone: (02) 6274 1467 Email: reo@environment.gov.au |
Before you download
Some documents are available as PDF files. You will need a PDF reader to view PDF files.
List of PDF readers
If you are unable to access a publication, please contact us to organise a suitable alternative format.
Key
Links to another web site
Opens a pop-up window