Tax incentives for conservation
Under the Income Tax Assessment Act 1997 taxpayers may benefit from donations of property valued at more than $5000 to relevant organisations.
The Capital Gains Tax treatment of payments for entering into conservation covenants, and the conservation covenant deduction measure, may also provide incentives for conservation.
Donations
You and the environment can benefit from:
- An income tax deduction for gifts of property 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 cannot 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 Australian Taxation Office 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 was established in 1992 to allow listed organisations to seek tax deductible donations.
What are the steps involved?
- Donors must obtain a valuation of the property from the Australian Taxation Office. The Australian Taxation Office charges a fee for valuations on a cost recovery basis and the fee 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 Department of Agriculture, Water and the Environment. 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.
- The Department has no role in vetting or approving the apportioning of the proposed deduction. The Department will acknowledge receipt of the form and will maintain it as record to be provided to the Australian Taxation Office if required for audit purposes. Further detail about the process and copies of the forms are available on the internet at Apportionment of deductions
Is your group eligible for the Register of Environmental Organisations?
For information about eligibility for the Register visit Register of Environmental Organisations
Conservation covenants
The Income Tax Assessment Act 1997 provides two types of tax concession for landholders entering a perpetual conservation covenant:
- 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.
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 Minister for the Environment (either directly or through being part of an approved conservation covenant programme);
- 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 Taxation Office. The Office charges a fee for valuations on a cost recovery basis and the fee is tax deductible. Information on the valuation process is available from the Australian Taxation Office and in the Income Tax Assessment Regulations 1997. Landowners will be able to spread the value of the deduction over five years using the process outlined above in relation to donation of land, and as detailed on Apportionment of deductions.
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 programme of conservation covenanting is one approved by the Australian Government Minister for the Environment. 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. To find out if the conservation covenanting programme is one approved by the Australian Government Minister for the Environment call the Department on 1800 803 772.
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 and 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 programme or approved directly by the Minister for the Environment.
Conservation covenants which are not eligible for the capital gains tax treatment will be subject to a capital gain 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 equaled 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 be exempt.
In addition, the Capital Gains Tax discount may 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 provisions 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.
Guidelines and procedures for the approval of covenanting programs. Guidelines are available at: Conservation covenants
The guidelines describe the elements required to be met for conservation covenanting programmes to gain approval by the Minister for the Environment. Approval procedures are also documented. For further information please contact the Department of Agriculture, Water and Environment on 1800 803 772.
Contacts for more information
| Area of interest | Contact |
|---|---|
| Conservation Covenants |
Department of Agriculture, Water and the Environment Australian Taxation Office |
| Register of Environmental Organisations | Department of Agriculture, Water and the Environment Administrator Register of Environmental Organisations GPO Box 858 Canberra ACT 2601 Phone: 02 6274 1467 Email: reo@environment.gov.au Web: http://www.environment.gov.au/about-us/business/tax/register-environmental-organisations |
| Valuation of property | Philanthropy Programme, Australian Taxation Office Philanthropy Programme Australian Taxation Office GPO Box 9977 Hobart TAS 7001 Email: philanthropy@ato.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 at: Apportionment of deductions Alternatively, you can contact the Department of Agriculture, Water and the Environment to ask for a form to be sent to you: Phone: 02 6274 1467 Email: reo@environment.gov.au |