Updated 26 July 2026
In this guide
- What Division 420 does
- The rolling balance method, step by step
- Choosing a valuation method
- Issued ACCUs versus purchased ACCUs
- GST treatment: ACCUs are GST-free
- What you can deduct
- Primary producer concession: taxed only when you sell
- Carbon Service Provider and aggregator arrangements
- Safeguard Mechanism entities
- Investors, international credits and sequestration rights
- Common mistakes we see
- Frequently asked questions
What Division 420 does
Division 420 is a self-contained regime for "registered emissions units" (REUs). ACCUs are the most common REU. The rules also cover Safeguard Mechanism Credits (SMCs) and certain international units recorded in an account in the Australian National Registry of Emissions Units.
The important point: for REUs, Division 420 replaces the normal rules. CGT does not apply. Income is on revenue account and is taxed at your full marginal rate or company rate. The 50% CGT discount is not available.
This also means the 1 July 2027 CGT reform (the replacement of the 50% discount with cost base indexation and a 30% minimum tax) does not change how ACCUs are taxed. ACCUs were never in the CGT system, so the reform passes them by.
Note the boundary. If you hold carbon units that are not REUs, for example international voluntary credits like Verra VCUs or Gold Standard VERs, Division 420 does not apply. Those are taxed under the ordinary income and CGT rules instead, and they are not GST-free. More on that below.
The rolling balance method, step by step
The rolling balance method is modelled on trading stock. It works like this:
- Acquisition. You get a deduction for the cost of becoming the holder of an ACCU in the year you start to hold it (section 420-15). If the Clean Energy Regulator issued the ACCU to you under the Carbon Credits (Carbon Farming Initiative) Act 2011, the cost is deemed to be its market value immediately after you begin to hold it (section 420-60(3)).
- Start-of-year value. The value of the units you held at the start of the income year is a deduction. In your first year holding ACCUs, that opening value is nil.
- End-of-year value. The value of the units you still hold at 30 June is included in your assessable income.
- Disposal. When you sell, surrender or otherwise cease to hold a unit, the proceeds are assessable income (section 420-25). Costs of ceasing to hold are deductible in the year of disposal.
The net effect: you are taxed on the change in value across the year, plus any realised gain or loss on sale. If the market value of unsold units rises, you have assessable income even though you have not sold anything. If it falls, you get a deduction. Being taxed on unrealised gains is the "phantom income" problem, and it is the single biggest reason the primary producer concession was introduced.
A company buys 10,000 ACCUs on 1 September 2025 at $30 each ($300,000) and still holds them at 30 June 2026 when the market value is $37.
FY2025-26: cost deduction $300,000. Opening value nil. Closing value in income: 10,000 x $37 = $370,000. Net assessable: $70,000, all unrealised.
FY2026-27: opening value deduction $370,000. Sells all 10,000 at $40 ($400,000 assessable). Closing value nil. Net assessable: $30,000.
Total across both years: $100,000, exactly the economic gain. The rolling balance just changes the timing, and it can tax you before you sell.
Choosing a valuation method
Division 420 gives you three ways to value units at year end. Your choice applies to all REUs of the same kind, so you cannot pick a different method unit by unit.
| Method | How it works | Suits |
|---|---|---|
| FIFO cost | Values units at original cost, earliest-acquired treated as disposed of first (section 420-52). This is the default. | Holders who acquired when prices were low and want smaller year-end inclusions |
| Actual cost | Values each unit at its own acquisition cost; you must identify individual units (section 420-53). | Small portfolios that can track individual units |
| Market value | Values all units at market value at 30 June (section 420-54). | Traders who mark to market, or holders selling soon after year end |
The first-year election is made under section 420-55 and later years under section 420-57. You can only change your valuation method for a year if you have used the same method for at least the four most recent income years, and the choice must be made before you lodge your return for that year. Choose deliberately.
Issued ACCUs versus purchased ACCUs
How you came to hold the units changes the numbers.
Issued ACCUs. If the Clean Energy Regulator issued ACCUs to you from a carbon project, the cost is the market value of the units immediately after you begin to hold them (section 420-60(3)). Note a trap: for issued ACCUs the deduction under section 420-15 is limited to the cost of preparing or lodging an application for a certificate of entitlement or an offsets report. Your other project costs (soil sampling, monitoring, verification, registration) are deducted under the ordinary rules in section 8-1 as business expenses, not under Division 420.
Purchased ACCUs. If you bought units on the secondary market or under a Carbon Abatement Contract, your cost is what you paid, deductible when you first hold them.
In both cases, disposal proceeds are assessable income with a deemed Australian source. That source rule matters for non-residents: a foreign holder can still be taxed in Australia on disposal.
If you transfer ACCUs to an associate or in a non-arm's length deal for less than market value, the transaction is treated as happening at market value for tax. Sellers of ACCUs are deemed to have received market value in transactions between related entities. Plan related-party transfers carefully.
GST treatment: ACCUs are GST-free
Under Subdivision 38-S of the GST Act (the operative provision is section 38-590), supplies of eligible emissions units, including ACCUs and SMCs, are GST-free. You do not charge GST when you sell ACCUs, and you can still claim input tax credits on GST paid on related acquisitions such as soil testing, aggregator fees, monitoring equipment and professional fees.
For your BAS, ACCU sales go at G1 (total sales) but not at 1A (GST on sales). Related input tax credits flow through 1B as normal. A common error: coding ACCU sales as GST-inclusive in Xero or MYOB because the sale looks like ordinary trading income. That overstates your GST and misstates your income, and your BAS will not reconcile to your return.
International voluntary credits (Verra, Gold Standard and similar) are not eligible emissions units, so their supply generally attracts GST. If you deal in both, code them separately.
What you can deduct
Beyond the Division 420 cost rules, project costs are generally deductible under ordinary principles (section 8-1) where they relate to earning assessable ACCU income:
- Clean Energy Regulator registration and application fees
- Soil sampling and baseline measurement
- Ongoing monitoring, verification and audit fees
- Aggregator or Carbon Service Provider management fees
- Legal and accounting costs for contracts, structuring and compliance
- For carbon sink forests, establishment costs under Subdivision 40-J over the life of the project
Watch capital versus revenue. New fencing, water infrastructure or other farm improvements made as part of a carbon project may be depreciating assets under Division 40 rather than immediate deductions, especially where they have broader farming use.
Primary producer concession: taxed only when you sell
For years, the rolling balance was a barrier to farmers, because it could tax them on paper gains on credits they intended to hold. The Treasury Laws Amendment (2023 Measures No. 2) Act 2023 (Act No. 28, 2023, Schedule 3) fixed this. It applies to assessments for the income year that includes 1 July 2022 and later years.
The mechanism is precise. The unit must be a "primary producer registered emissions unit" (PPREU) as defined in section 420-13. Where it is, section 420-62 switches off the rolling balance subdivision for that unit. The result:
- No annual valuation. You are not taxed each year on value movements in eligible ACCUs. The phantom income problem disappears.
- Taxed on sale only. You are assessed on the proceeds when you actually sell.
- Primary production income. Sale proceeds are treated as primary production income for the Farm Management Deposit scheme and income tax averaging. Related expenses are treated as primary production deductions.
That last point is worth money. It lets you deposit ACCU proceeds into a Farm Management Deposit to defer tax in a big year, and it lets you smooth a lumpy sale across years with averaging, the same way you would with livestock or grain income. We cover the concession in more depth in our guide to the tax treatment for primary producers selling carbon credits.
Who is eligible (and who is not)
Eligibility is narrow. To be a PPREU under section 420-13:
- You must be an individual.
- You must first hold the ACCU on or after 1 July 2022.
- The ACCU must be issued to you under the CFI Act for an eligible offsets project, or transferred to you by a Carbon Service Provider that was issued the unit for such a project on or after 1 July 2022.
- A primary production business must be carried on, throughout the project, in the same area as the project or an area connected to it.
Companies are excluded entirely. Trusts are not eligible in their own right: a trust that holds ACCUs stays on the rolling balance method and is taxed each year on value movements. However, individual beneficiaries of a trust that carries on a primary production business can treat their share of trust net income from the sale of eligible ACCUs as primary production income for Farm Management Deposit and income averaging purposes. The catch: the concession at the beneficiary level only applies to income from actual sales, while the trust itself still bears annual tax on unrealised value movements. That mismatch needs planning.
A grain grower operating as a sole trader runs an eligible soil carbon project on the same land. In FY2024-25 the Clean Energy Regulator issues her 1,000 ACCUs (market value $35 at issue). Because these are PPREUs, she is not taxed on any annual value movement while she holds them.
In FY2025-26 she sells all 1,000 at $37. She is assessed on $37,000 as primary production income, can deposit proceeds into a Farm Management Deposit to defer tax, and can apply income averaging to smooth the spike. Her project costs are deductible as primary production expenses.
Compare that with the company example above, which was taxed on a paper gain before any sale. Same asset, very different timing.
Carbon Service Provider and aggregator arrangements
Many farmers work through a Carbon Service Provider. The structure of that deal decides your tax outcome. Income from a CSP arrangement keeps its primary production character only if the arrangement is not a rental or lease, involves the CSP holding or dealing in the ACCUs, and relates to units that would have been eligible PPREUs had you held them directly.
If your agreement is a lease of land to the CSP, the payments are lease income, not primary production income, and you lose the concession, FMDs and averaging on that income. Get the agreement reviewed before you sign.
Safeguard Mechanism entities
Safeguard facilities that exceed their baseline surrender ACCUs or SMCs to comply. Under Division 420, a purchased unit's cost is effectively recognised when it is surrendered, so surrender to meet a compliance obligation produces a deduction. For an SMC issued to a facility and later surrendered against its own liability, there is generally no income tax event: nothing was paid for it and nothing is received. If units are instead sold on market, the normal rolling balance and disposal rules produce the taxable result.
Investors, international credits and sequestration rights
Not everyone holding carbon units is in Division 420. If you are an investor holding international voluntary credits (Verra VCUs, Gold Standard VERs and similar), those are not REUs. They are taxed under the ordinary rules. Whether a gain is on revenue or capital account depends on your purpose and activity: units held as trading stock or a revenue asset are taxed as ordinary income, while units genuinely held on capital account fall into the CGT rules (and, unlike ACCUs, could access the CGT discount, at least until the 1 July 2027 changes). These credits are generally not GST-free either. The characterisation is fact-specific and worth confirming before you rely on it.
Do not confuse ACCUs with sequestration rights. The ACCU itself is a revenue asset under Division 420 and is not a CGT asset. A carbon or soil sequestration right over your land is different. It is a CGT asset. Selling or granting a sequestration right can trigger a CGT event, and for a primary producer that right can be an active asset that may qualify for the small business CGT concessions. Two separate assets, two separate tax regimes. Treat them separately.
Common mistakes we see
- Reporting ACCU sales as capital gains and applying the 50% discount. Division 420 overrides CGT. Every issuance and transfer is recorded in the Australian National Registry of Emissions Units, so there is a clear audit trail.
- Forgetting the year-end valuation. If you hold ACCUs at 30 June and skip the rolling balance calculation, you understate income.
- Coding ACCU sales as GST-inclusive. They are GST-free.
- Missing the cost recognition on issued ACCUs, and paying tax on gross proceeds instead of the net position.
- Assuming the primary producer concession applies to a company or trust. It does not.
The tax rules above are settled law as at July 2026. The Carbon Credits and Other Legislation Amendment (Integrity and Transparency) Bill 2026 (exposure draft released 30 April 2026) covers scheme integrity and governance, not tax, and is not yet law. We will update this guide if the tax position changes.
Frequently asked questions
How are ACCUs taxed in Australia?
Under Division 420 of the ITAA 1997, on revenue account. Most holders use the rolling balance method: deduct the cost when you start to hold a unit, bring the year-end value to account each year, and include sale proceeds when you dispose. There is no 50% CGT discount.
Do ACCUs get the 50% CGT discount?
No. Division 420 taxes ACCUs on revenue account, so the CGT discount never applied. The 1 July 2027 CGT reform does not change this, because ACCUs were never in the CGT system.
What is the rolling balance method?
It compares the value of your ACCU holdings at the start and end of the income year. An increase is assessable income; a decrease is a deduction. Add proceeds on any units you dispose of during the year.
Are ACCU sales subject to GST?
No. Supplies of eligible emissions units (including ACCUs and SMCs) are GST-free under section 38-590 of the GST Act. You still claim input tax credits on related costs. ACCU sales appear at G1 on your BAS but not at 1A.
Can primary producers defer tax on ACCUs?
Yes, if eligible. For a primary producer registered emissions unit (section 420-13), the rolling balance is switched off and you are taxed only when you sell. Proceeds count as primary production income for Farm Management Deposits and income averaging.
Who is not eligible for the primary producer concession?
Companies (excluded entirely) and trusts in their own right. Individual beneficiaries of a primary production trust can access the concession on their share of income from ACCU sales, but the trust itself stays on the rolling balance.
How are ACCUs issued to me taxed compared with ones I buy?
For issued ACCUs, the cost is the market value immediately after you begin to hold them (section 420-60(3)). For purchased ACCUs, the cost is what you paid. Disposal proceeds are assessable in both cases.
How are international voluntary carbon credits taxed?
They are not registered emissions units, so Division 420 does not apply. They are taxed under ordinary income or CGT rules depending on whether you hold them on revenue or capital account, and their supply is generally not GST-free.
Holding or generating ACCUs this year?
The gap between the rolling balance and the primary producer concession, and getting your valuation method, structure and CSP agreement right, can be worth real money. Book a consultation and we will review your position before 30 June does it for you.
Soil carbon credit tax teamThis article provides general information only, current at the date of publication, and does not constitute personal tax, legal or financial advice. Consider your circumstances or speak with us before acting. Liability limited by a scheme approved under Professional Standards Legislation.
