Private ruling: Payments to a landowner from a native vegetation credit offset scheme
Date of advice: 3 March 2026
Published: 20 April 2026
Ruling period: Start of the agreement until the last payment the landowner receives under the agreement.

Ruling: Q1: Are the initial payment and annual payments (received over the ten-year period of the landowner agreement) included in the landowner's assessable income under section 6-5? | A1: Yes. | Q2: Is the holding fee included in the landowner's assessable income under section 6-5? | A2: Yes. | Q3: If the answer to Questions 1 and 2 is 'yes', will the landowner be required to include any additional amount in his assessable income because of a net capital gain from a CGT event under Part 3-1? | A3: No.

Relevant facts and circumstances: 1. The landowner signed a landowner agreement with the (x) state government department covering X hectares of native vegetation. 2. The landowner agreement generated native vegetation credits that could be sold by the landowner to third parties (typically developers or the state government). 3. The landowner agreement obliges the landowner to take certain actions and restricts the landowner's rights to use the land. These include completing an agreed site management plan, avoiding interfering with rocks and vegetation, maintaining fencing, controlling pests and weeds on the site, excluding livestock, and avoiding carrying out certain activities. The landowner must also submit an annual report to the state government department. 4. The landowner agreement applies in perpetuity. 5. Sometime later, the landowner entered a memorandum of understanding (or 'MOU') with a third-party purchaser, with a holding fee payable to the landowner at the end of the MOU term. 6. The MOU is about the potential entry into a native vegetation offset trade agreement, under which the landowner sells native vegetation credits to the purchaser. The MOU required the landowner to reserve the offset site for a period while the purchaser investigated the site and sought approval from the relevant authority. 7. Some months later, the purchaser entered into a native vegetation offset trade agreement with the landowner, which covers a portion of the X hectares covered by the landowner agreement. 8. The purchaser paid the MOU holding fee ($X plus GST) to the landowner. 9. The sale price (for the native vegetation offsets) is paid into a state government department trust account to be distributed to the landowner over a x-year period while the landowner manages the land in accordance with the landowner agreement. The sale price was $X plus GST. This is paid to the landowner as an 'initial payment' and x annual payments over the term of the agreement. 10. The landowner gave us copies of the following documents. • Landowner Agreement between the state government department, and the landowner • Memorandum of Understanding between the landowner and the purchaser • Three Party Environmental Offset Trade Agreement between the purchaser, the landowner, and a native vegetation credit register broker. 11. We treat the contents of these documents as fully incorporated in the facts and circumstances of this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 118-20

Reasons for decision: Summary: Are the initial payment and annual payments (received over the ten-year period of the landowner agreement) included in the landowner's assessable income under section 6-5? Yes. | Detailed Reasoning - Explanation: 12. Section 6-5 includes ordinary income in your assessable income. 13. Gains from carrying on business are assessable as ordinary income. [1] 14. Whether a person is carrying on business is determined by weighing relevant indicators. All must be considered in combination and as a whole, with no single indicia being decisive, and the weighting of each indicia may vary from case to case. Without meaning to be exhaustive, the indicia of a business include: • whether the activity has a significant size or scale • the person's purpose and intention • whether the activity is (or may be) profitable • repetition and regularity of activity • whether the activity is carried on in a businesslike manner • whether there is a business plan. [2] 15. Considering these indicia, we think the landowner is carrying on a business activity of exploiting land to sell native vegetation credits under the scheme. The size and scale of the activity is significant, as the landowner has ventured X hectares into the scheme. The landowner is required to carry out certain activities (such as weeding and pest control) regularly, under an agreed land management plan. The landowner will receive substantial payments (totalling almost $XM) over the course of the program, suggesting both an intention to profit and a likelihood of obtaining a profit from the activity. 16. The sale price will be assessable to the landowner as ordinary income as receipts from business activity (with each 'initial' or 'annual' payment assessed in the year the landowner receives it). | Detailed Reasoning - Question 2: Is the holding fee included in the landowner's assessable income under section 6-5? | Detailed Reasoning - Answer: Yes. | Detailed Reasoning - Explanation: 17. As mentioned in our explanation to Question 1, gains from carrying on business are assessable as ordinary income. 18. Unusual gains or receipts that are intimately connected with a business activity will also have the character of ordinary income, even if they aren't an ordinary incident of that business. [3] 19. The holding fee will be assessable under this principle. The purchaser paid the holding fee to the landowner to reserve the site (i.e. to abstain from selling the credits to another party) before the purchaser carried out the necessary investigations to get approval to buy the credits. This gives it a close connection with the landowner's business of exploiting land to sell native vegetation credits. It has the character of ordinary income. | Detailed Reasoning - Question 3: If the answer to Questions 1 and 2 is 'yes', will the landowner be required to include any additional amount in his assessable income because of a net capital gain from a CGT event under Part 3-1? | Detailed Reasoning - Answer: No. | Detailed Reasoning - Explanation: 20. Subsection 118-20(1) reduces capital gains you make from a CGT event if, because of the event, a provision includes an amount in your assessable income. [4] 21. Any capital gain the landowner makes from any CGT event that happens under this scheme will be reduced to nil because the capital proceeds would represent receipts (e.g. the initial payment, annual payments, and the holding fee) that are assessable as ordinary income under section 6-5. [1] See e.g. Parsons R.W (1985) [2011] Income Taxation in Australia: Principles of Income, Deductibility, and Tax Accounting, The Law Book Company Limited, Sydney, p. 26 [2.7]. [2] See Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? at paragraphs 11 to 18. [3] See e.g. ATO Interpretative Decision ATO ID 2006/221 Income Tax: Ordinary Income: rebate of professional indemnity insurance premiums citing Warner Music Australia Pty ltd v Commissioner of Taxation. [4] Note subsection (1A) says subsection (1) applies to treat amounts as being included 'because of' the relevant CGT event, if the amount would also be taken into account in working out the capital gain amount.

Subject: Payments to a landowner from a native vegetation credit offset scheme: In this ruling and reasons, legislative provisions are in the Income Tax Assessment Act 1997.