Is voluntary carbon offsetting tax deductible in Australia?

In Australia the tax treatment of purchasing carbon offsets depends on how you transact and the nature of the purchase.

• Donations to deductible gift recipient organisations such as carbon not-for-profits can be tax deductible for individuals or businesses as a charitable donation when that organisation is a Deductible Gift Recipient under Australian tax law. For example some tree planting offset programs offered by charities are tax deductible because they are treated as a donation. You would receive a receipt and can claim it as a deduction in your tax return.

• Purchasing formal carbon credits or offset units in the voluntary or compliance market for the purpose of offsetting your corporate emissions is generally treated like any other business expense, meaning the cost can be claimed as a deduction against taxable income in the year it is incurred if it is incurred in producing your assessable income. Businesses should hold proper documentation and seek independent tax advice to confirm eligibility.

• Special cases include Australian Carbon Credit Units (ACCUs) and other registered emissions units, where specific income tax rules under Division 420 of the Income Tax Assessment Act apply. Costs related to acquiring or surrendering those units can have particular tax treatments that may differ depending on the circumstances and should be considered with professional advice.

Given the complexity and the fact tax outcomes vary with individual business circumstances, it is recommended to confirm with a qualified tax adviser or the Australian Taxation Office for your specific situation.