Farming carbon: taxation implications of the Carbon Farming Initiative

Abstract

The Government's clean energy strategy, to commence from 1 July 2012, departs from the former Carbon Pollution Reduction Scheme (CPRS) in a number of ways. One key departure is the Carbon Farming Initiative (CFI). The CFI signals a change in approach to land use issues from the previous CPRS, as the Government has decided agriculture and other land-based activities will not be covered by the carbon pricing mechanism. Rather, changes in land use will be incentivised by way of the CFI. The CFI also goes well beyond the forestry-based activities included in the CPRS to cover many and varied project types.This article explores the tax implications of key elements of the CFI. It describes the link between the CFI and the carbon price that forms the basis for the inclusion of units issued under the CFI in the taxation rules. It also outlines the key operation and taxation elements of the revised clean energy scheme and highlights key departures from the CPRS.