NO.039

ESTABLISHMENT COSTS FOR CARBON SINK FORESTS DEDUCTIBLE

Treasurer Peter Costello today announced new tax arrangements applying to the costs of establishing forests for the dedicated purpose of reducing greenhouse gas emissions.

The Government recognises the role that forests can play in reducing the greenhouse gases in our atmosphere. Forests act as carbon sinks by absorbing carbon dioxide from the air and storing it as carbon in their woody tissues.

The Government will allow carbon sink forest operators to depreciate the costs of establishing a qualifying carbon sink forest under the horticultural plant provisions, with effect from 1 July 2007.

As an additional enhancement to encourage the early establishment of carbon sink forests, the Government will introduce immediate deductibility for costs incurred in establishing a qualifying carbon sink forest during a five-year period commencing 1 July 2007. The immediate deduction will take precedence over the general horticultural provisions during this period. Deductions under this measure will not be available to carbon sink forests established through managed investment schemes.

To be eligible for tax deductibility, businesses establishing carbon sink forests will need to participate in the Government’s Greenhouse Challenge Plus programme, a government/industry partnership that encourages industry actions to reduce greenhouse gases. Carbon sink forest operators must also demonstrate that their projects comply with environmental and natural resource management guidelines applicable to their geographic location.

These requirements will ensure the integrity of carbon sink forests in meeting national objectives on climate change and on natural resources management, for example by making sure that carbon sink projects do not have unintended consequences for flora and fauna habitats or on water resources.

CANBERRA

8 May 2007

Media Contact: David Gazard: 02 6277 7340