NO.044

Capital Gains Tax Amendments and Private Conservation

I am announcing amendments to the capital gains tax (CGT) rules to ensure that

landowners who set aside part or all of their land for conservation in perpetuity

will not be disadvantaged. The change will result in a lower tax liability

for most landowners entering into perpetual conservation covenants, and a zero

tax liability for those landowners who have held their land since before 20 September 1985.

Governments and environmental philanthropic organisations enter into covenants

with landowners to conserve their property in perpetuity, in order to maintain

its environmental value for all Australians. Previously, nearly all the consideration

received for entering into such covenants was taxable. Landowners have not

been able to access the pre-1985 exemption or the 12 months CGT discount.

The amendments should promote greater participation in perpetual conservation

covenants and so enhance the protection of Australias unique and fragile native

ecosystems.

Under these amendments, at the time of entering into the covenant the landowner

will apportion the cost base of the property between that part subject to the

covenant and the remaining property. The covenant will then be treated as a

part disposal of the property. CGT will be payable on the difference between

the consideration received and the cost base apportioned to the covenant. When

the land is subsequently sold, any capital gain will be calculated on the difference

between the sale price and the remaining cost base of the property.

The capital gain made from the covenant will attract a pre-1985 exemption,

or the 12 months CGT discount for individuals, trusts and complying superannuation

entities, where applicable. In addition to these benefits, small business

landowners who enter into conservation covenants may be able to access the

small business CGT concessions.

The change will be of immediate benefit to landowners who have negotiated covenants

with the Tasmanian Private Forest Reserve Program, as well as being relevant

to landowners throughout Australia.

Only those covenants entered into for a consideration, and which enhance Australias

environmental values will be eligible for the new tax treatment. Programs offering

conservation covenants would need to be accredited by the Federal Minister

for the Environment. Legislation to implement the Governments decision will

be introduced into the Parliament as soon as practicable. The amendments will

take effect from 15 June 2000, so as to benefit all landowners who have entered

into covenants under the Tasmanian Private Forest Reserve Program.

Canberra

15 June 2001

Contact:

Andrew Stephens (ATO): 02 6216 1105

Scott Bartley (Treasury): 02 6263 4411