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Inland Revenue

Tax Policy

Emissions trading scheme: tax treatment of surrendered units



The provisions which deal with the tax consequences of transactions under the Emissions Trading Scheme (ETS) should be amended. It would be desirable for the surrender of emissions units by a post-1989 forester who wishes to leave the ETS to have the same tax treatment as the surrender of units on harvest.


Current income tax legislation sets out the tax consequences of the acquisition and disposal of emissions units under the emissions trading scheme.

Included in those rules are specific rules which deal with foresters who elect to participate in the ETS – under which they will receive units for the capture of carbon in their growing forests, and be required to surrender units when they harvest their timber. The tax rules provide that income arises when emissions units received are sold, and a deduction arises when emissions units are surrendered.

However, a forest owner who has participated in the ETS and received emissions units may choose to exit from the ETS. A forester who does this will be required to surrender to the Government a number of emissions units equivalent to the number previously received. This transaction was not envisaged when the current tax provisions were drafted. The correct outcome is that these surrenders ought to give rise to a deduction.

This submission addresses a matter in legislation which does not appear in the current bill. However, officials’ view is that the requested amendment should be made promptly, so they recommend it be added to the current bill.

The amendment is taxpayer-friendly, so officials recommend it take effect from 1 July 2010, the date the original legislation took effect.


That the submission be accepted.