Consequences of transfer of emissions units between forestry rights holders

2010 amendments covering to the transfer of emissions units between forestry rights holders and the relevant tax treatment.

Background

Forestry rights agreements are entered into between a landowner and another party, who will normally take responsibility for planting, maintaining and harvesting the forest. The forestry rights agreement will normally contain a clause under which revenue earned from the forest is shared between the parties. Forestry rights agreements are registered under the Forestry Rights Registration Act 1983.

The Climate Change Response Act 2002 allows only either the landowner or the holder of the forestry right to register to receive all of the units allocated for any particular piece of land. The party which receives all of the units will normally satisfy its obligations under the forestry rights agreement by transferring, without consideration, a proportion of the units to the other party.

Key features

Two separate amendments are made to ensure that:

  • the special tax treatment accorded to forest land emissions units applies to a transferor who is a party to a forestry right; and
  • a transfer of emissions units from one party to a forestry right to another does not trigger the anti-avoidance rule.

Detailed analysis

Special tax treatment accorded to forest land emissions units

The special tax treatment accorded to forest land emissions units is extended to the transferor under a forestry right by:

  • new paragraph (b) of the definition of post-1989 forest land emissions unit; and
  • new paragraph (c) of the definition of pre-1990 forest land emissions unit;

in section YA 1.

Anti-avoidance rule

As noted in the previous item, section GC 3B applies section GC 1 to transfers of emissions units, and potentially deems transfers at less than market value to have taken place at market value. Section GC 3B(2)(c) states that the market value transfer rule does not apply to a transfer between two parties to a forestry right, under a provision of that forestry right dealing with the allocation of income.

Application date

The amendment applies from 1 January 2009.