Tax concessions

Tax concessions are available to land owners who enter into conservation covenants to protect areas of high conservation value.

• A landowner who receives some capital proceeds for entering into a conservation covenant on or after 15 June 2000 may qualify for concessional Capital Gains Tax treatment.
• A landowner who does not receive any money, property or other material benefit for entering into a conservation covenant may be eligible for:
  • an income tax deduction
  • concessional Capital Gains Tax treatment.

Income Tax Deduction and Conservation Covenants

To qualify for a deduction, a conservation covenant must:

1. be in perpetuity and, where possible, attached to the title of the land
2. be entered into under an approved conservation covenant program for the purposes of the Income Tax Assessment Act 1997 or approved by the Minister for the Environment (email: nrs.environment@dcceew.gov.au for more information)
3. result in a loss of market value of more than $5,000 or be attached to land acquired less than 12 months before the covenant was registered on title; and
4. be entered into between the landowner and:
   1. a Deductible Gift Recipient (DGR). You can check the Deductible Gift Recipient status of an organisation on the Australian Business Register website; or
   2. the Commonwealth, a state, a territory or a local governing body or an authority of the Commonwealth, a state or a territory.

A landowner will not be eligible for a deduction if they have received any money, property or other material benefit in return for entering into a conservation covenant. 

Landowners will need to have the decrease in market value of their land, and hence the amount of the deduction, determined by the Australian Taxation Office (ATO). 

The ATO charges a fee for valuations on a cost recovery basis and the fee is tax deductible. Information on Conservation covenant tax concessions is available on the ATO website and in the Income Tax Assessment (1997 Act) Regulations 2021 on the Federal Register of Legislation.

Landowners will be able to spread the value of the deduction over multiple years. 

Before entering into a conservation covenant, landowners should confirm the:

• proposed holder of a conservation covenant is an eligible organisation
• conservation covenanting program under which the covenant is to be registered, is approved by the Australian Government Minister for the Environment.

To do this:

• Phone the ATO: 13 28 61 
• Review the list of approved conservation covenanting programs

Capital Gains Tax and Covenants

Where a landowner is eligible to claim a deduction for granting a conservation covenant, Capital Gains Tax provisions will apply.

The Capital Gains Tax treatment applies where a landowner:

1. receives money or property for granting a conservation covenant; or
2. is eligible for a tax deduction.

In both cases, the covenant must be entered into as part of an approved conservation covenanting program or approved directly by the Minister for the Environment.

Conservation covenants which are not eligible for the Capital Gains Tax treatment will be subject to a capital gain equal to the difference between the money and/or property received and the costs incurred in granting the covenant. 

If no money or property is received, a capital loss equal to the costs incurred in granting the covenant will arise.

Benefits

Where a landowner receives money or property for granting a conservation covenant the Capital Gains Tax treatment will result in a reduced capital gain because a portion of the cost base of the land is taken into account in working out the capital gain (previously the capital gain equalled the amount received for the covenant less incidental costs).

Landowners are also able to access any Capital Gains Tax concession or exemption that may apply to the capital gain. For example, a capital gain from a covenant granted in respect of land owned before 20 September 1985 will be exempt. 

In addition, the Capital Gains Tax discount may apply if the land has been owned for at least 12 months or the small business concessions may apply if the relevant conditions are satisfied.

How it works

The Capital Gains Tax provisions recognise that, economically, the landowner has suffered some loss in the value of his/her land by entering into the conservation covenant. Therefore, when determining the amount of a capital gain from the grant of a conservation covenant, a portion of the cost base of the land will now be taken into account.

This treatment is equivalent to that applied to the sale of part or all of the land or, in some cases, the removal of trees from the land.

Guidelines and procedures for the approval of conservation covenanting programs are available on How to apply. The guidelines describe what is required for conservation covenanting programs to gain approval by the Minister for the Environment and the approval procedures. For further information email: nrs.environment@dcceew.gov.au.

Landowners should seek advice from authoritative sources (e.g. The ATO and a registered tax accountant) in order to fully understand the requirements of the Income Tax Assessment Act 1997. Find out more about eligible environmental taxation concessions and spreading your donation over multiple years.

Contacts

Refer to Tax incentives for conservation for some useful contacts for seeking further information on tax concessions for landowners who enter into conservation covenants.