Permanent Forest Sink Initiative

Amendment aligns the tax treatment of the Permanent Forest Sink Initiative with the Emissions Trading Scheme. Applies from 1 Jan 2009.


The Permanent Forest Sink Initiative (PFSI) is a government scheme under which foresters who enter into a covenant limiting their rights to fell their timber can receive emissions units from the government. These emissions units reflect the capture of carbon in the growing forests. If there is a loss of carbon in the forest beyond that permitted under the covenant, the forester is required to surrender emissions units back to the government.

Key features

These amendments make the tax treatment of the receipt of emissions units from government, and the surrender of emissions units to government, the same as the treatment of those transactions for post-1989 foresters under the emissions trading scheme (ETS). That treatment is that emissions units transferred by the government give rise to income and their surrender is deductible, both on a cash basis, consistent with the general tax treatment of forestry.

Detailed analysis

The general approach of the amendments is to provide legislation which parallels the existing legislation for post-1989 forestry under the ETS.

Section CB 36 is amended to deal with the surrender of emissions units to meet a liability under a PFSI covenant, and the surrender of an emissions unit awarded under PFSI to satisfy a liability which does not arise under either PFSI or post-1989 forestry.

Section DB 60 is amended to state that no deduction arises when a person is transferred an emissions unit under a PFSI covenant.

Section DB 60B is amended to state that no deduction arises when a liability to surrender emissions units arises under a PFSI covenant.

Section ED 1(5B) and (5C) are amended to include emissions units transferred under a PFSI covenant within the pooling rules.

New section GC 3B includes a provision that states that the market value transfer rule does not apply when a person transfers emissions units to the Crown under a PFSI covenant.

Section YA 1 includes a new definition of "forest sink emissions unit", and consequential changes are made to the definitions of "forest land emissions unit" and "replacement forest land emissions unit".

Application date

The amendment applies from 1 January 2009.