If your Australian-based business owns or manages forestry land in New Zealand, participation in the Emissions Trading Scheme (ETS) can significantly affect your New Zealand tax obligations. The ETS rewards or penalises forestry owners based on carbon emissions and sequestration, but it also creates income tax and GST implications that are often overlooked.
Inland Revenue’s Interpretation Statement IS 25/13 clarifies how income tax and GST apply to the acquisition, sale, and surrender of New Zealand Units (NZUs) – the carbon credits issued under the ETS. Understanding these rules is essential for avoiding unexpected tax liabilities and ensuring your forestry activities remain compliant.
Key income tax considerations
When your forestry activities are registered in the ETS, any NZUs received—for example, as recognition for carbon storage – are treated as income at the time they are received. This means that the market value of the NZUs must be included in your taxable income in New Zealand.
If your business sells NZUs, the proceeds from the sale are also taxable as income. Conversely, if your business must surrender NZUs – for instance, after harvesting trees or if carbon stock falls below a threshold – the cost of acquiring those surrendered units is generally deductible. These rules can result in fluctuating taxable income depending on your forestry activity cycles.
NZ GST treatment under the ETS
The GST consequences can be equally significant. If your forestry business is GST-registered in New Zealand, transactions involving NZUs are generally subject to GST. This means that:
When NZUs are sold, GST must be accounted for on the sale value.
When NZUs are purchased, GST can typically be claimed back as an input tax credit.
When NZUs are surrendered to the Crown (for example, to offset emissions), that transaction is outside the scope of GST, as it is not a supply made to another GST-registered person.
These distinctions are important for maintaining accurate records and avoiding errors in GST returns.
Why this matters for Australian forestry investors
For Australian-owned entities or family businesses managing forestry assets across the Tasman, the cross-border tax interaction adds complexity. While NZU income and deductions arise under New Zealand tax law, they may also have implications for your Australian reporting.
Navigating these overlapping obligations requires an understanding of both systems – how New Zealand taxes ETS-related income and how Australia treats foreign income and carbon credit transactions.
We can help
At NZ Tax Accountants, we specialise exclusively in New Zealand tax for Australian-based businesses. Whether you’re registering forestry activities in the ETS, selling NZUs, or reconciling your GST and income tax returns, our team can guide you through the compliance requirements and help you structure your reporting efficiently.
Contact us today to discuss how to manage your New Zealand ETS obligations while staying aligned with Australian tax expectations.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.