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Is the taxpayer entitled to a deduction under section 40-630 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred on seedlings and fencing for the purpose of revegetating land?

No. The taxpayer is not entitled to a deduction under section 40-630 of the ITAA 1997 for expenditure incurred in revegetating the land as the expenditure is not incurred in the course of carrying on a business.

The taxpayer is a rural landholder who has revegetated 20 hectares of land with indigenous species to encourage the return of native wildlife and ameliorate land degradation. The taxpayer does not conduct a business on the land.

The taxpayer has spent a significant amount of money in revegetating, with the intention of selling the carbon sequestration rights that will be generated, to recover some of these costs.

The taxpayer has entered into a profit a prendre agreement with an entity for the sale of the carbon sequestration rights relating to the whole of the 20 hectares of land.

Capital expenditure on a landcare operation is deductible for the income year in which it is incurred, under section 40-630 of the ITAA 1997, provided the operation is for: • Australian land you use for carrying on a primary production business; or • rural Australian land you use for carrying on a business for a taxable purpose from the use of that land (except mining or quarrying).

The taxpayer does not satisfy either of these conditions, because their only use of the land, being the granting of an interest in the land by way of a profit a prendre agreement, does not amount to the carrying on of a business. This is because the activity lacks significant commercial purpose or character, there is no repetition or regularity in the way the activity is carried on, and there is no real intention or prospect of making a profit (see note). Therefore, a deduction is not available to the landowner under section 40-630 of the ITAA 1997. Note: Taxation Ruling 97/11 outlines the factors to be taken into consideration in determining whether a business exists.