Avoiding The Flood Tax Problem Authorized By Agribusiness
background
In Australia, water is considered a valuable resource, and the statutory licensing system is rampant in all states and regions. In many cases, water licenses will become an important asset for typical primary production enterprises. In addition, primary producers are participating in more and more authorization related transactions and transactions. This includes, for example, authorized license sales, authorized transactions or authorized transfers between related entities during the restructuring of civil society groups as part of the overall land and commercial sales.
Therefore, advisers acting on behalf of primary producers must deal with the special tax treatment of authorizations under the broader legislation governing authorizations and revenue legislation.
Legal framework
Common law
Historically, the landowner has the general legal right to use the water flowing into the land to extract water from groundwater sources and the rivers or streams flowing or adjacent to the land(called “riparian hydrosphere”). These rights cannot be separated from the land and must be transferred when the land is transferred. The only limit on the exploitable quantity is that it does not hinder the reasonable use of other landowners with these rights. In addition, landowners’ rights to water cannot exceed their rights to land.
Authorization is not a unique legal concept, but a part of a series of rights related to land ownership
statutory license
The common law has largely been replaced by legislation in all states and territories, which issues water permits and provides a comprehensive statutory plan for water resource management. This includes water resources in major river systems such as the Moli Darling Basin and more localized water resources such as aquifers and lakes.
Generally speaking, water licensees have the right to extract a certain amount of water from the designated water resources for designated purposes according to the terms and conditions of the license. These water resources may include river courses, groundwater, springs, dams and other water conservancy projects.
Relevant state and regional government departments maintain water resource registers, record and maintain information about water rights and their ownership. However, unlike the property register, there is no general concept of authorization where ownership is not registered in the property register.
Water trading
The quantity extracted from a particular source is an important provision of the permit. This quantity represents the right to water, that is, the right to enjoy a certain amount permanently. The percentage of rights that the license owner can use in a water year is called allocation. Allocations may vary depending on water availability, environmental flow requirements, and relevant state and federal laws. Allocations, permissions and/or water use rights can be traded. In New South Wales, Victoria and South Australia, both landowners and non landowners can purchase and sell authorizations permanently or temporarily.
The Mailer Darling Basin is the most active water market in Australia, with the most significant water trading. At present, a large number of water transactions have taken place, providing a platform for water rights transactions in the basin.
Take authorization as legal property
The separation of authorization and real estate provides the basis for authorization to be regarded as legal property. In fact, the legislation of some jurisdictions has a strong guiding significance on this issue. For example, in Australia, water permits and water allocations are considered:
“According to the provisions of the Natural Resources Management Act 2004, or according to the provisions of this Act, according to other laws related to transfer or property, it can be transferred to others; vI.
The legislation of New South Wales does not express authorization as property, but provides a system to deal with authorization in a way similar to real estate. For example, New South Wales legislation allows mortgages and warnings to be registered under water supply permits. 7 South Australia and Victoria have similar regulations, but the relevant regulations of South Australia have not come into force until the date of filling in this document.
It is important to recognize the independent legal existence of land related to authorization and these rights for the tax treatment of authorization according to income tax legislation, which will be discussed below.
Tax impact
Income or capital account
The ability of the license owner to carry out water trading activities should assess whether the proceeds of the authorized sale or transfer can bring benefits, not capital gains.
According to Article 6-5 of the 1997 Income Tax Assessment Method(TH)(IT AA1997), income income can be evaluated as general income, including general 50% discount. The current preferences that are not suitable for capital income are naturally inconsistent. eight
If trading is particularly frequent, licenses and distributions may still be considered trading stocks. It can be seen that taxpayers involved in regular and systematic water trading activities are engaged in water rights trading business, which is not unthinkable. The market for trading authorization of listed companies, fund managers and other large organizations has grown considerably. A large part of these assets may be leased, but some assets are transferred during the transaction.
It is also possible to obtain benefits through sales authorization and make additional transactions to obtain general income.
However, in most cases, the authorization owned by the first producer may be considered as having a capital account, so it should be taxed according to the capital gains tax(CT) system.
