For years, one of the biggest barriers to farmer participation in carbon farming was tax. Under the standard Division 420 rules, ACCUs are taxed on a rolling balance method — meaning you could owe tax on unsold credits that had gone up in value, even if you hadn’t seen a dollar of cash. Farmers were being asked to fund tax bills from phantom income on an asset they intended to hold for years.
The Treasury Laws Amendment (2023 Measures No. 2) Bill 2023 changed that. Retrospective to 1 July 2022, it introduced Subdivision 420-BA of the ITAA 1997 — a concessional tax regime specifically designed for primary producers holding ACCUs. If you qualify, it fundamentally simplifies how your carbon credits are taxed.
But eligibility is narrow, and the traps are real. This article explains who qualifies, what the concessions do, and where the problems hide.
The three concessions
The concessional regime provides three distinct benefits for eligible primary producers holding “Primary Producer Registered Emissions Units” (PPREUs):
Tax deferred to point of sale
The rolling balance method is switched off. You are not taxed on annual value movements in your ACCU holdings. Instead, you’re only taxed when you actually sell, surrender or dispose of the units. No more phantom income. No more funding tax bills from unrealised gains.
ACCU income counts as primary production income for FMDs
Sale proceeds from PPREUs are treated as primary production income for the purposes of the Farm Management Deposit scheme. This is critical — FMDs require your non-primary-production income to be below $100,000. Without this concession, a large ACCU sale could push you over the threshold and disqualify your existing FMD balances, triggering an unexpected tax hit.
ACCU income qualifies for income averaging
ACCU sale proceeds are treated as primary production income for income tax averaging purposes. This allows you to smooth the tax impact of a large, lumpy ACCU sale across multiple years — the same way you’d smooth income from a big livestock sale or an exceptional harvest. For farmers in higher brackets, this can meaningfully reduce the effective tax rate on a carbon credit windfall.
Who qualifies — the four eligibility tests
Not everyone gets the concessions. Eligibility is built around four requirements, and all four must be satisfied:
1. You must be an individual. Companies cannot access the concessions under any circumstances. This is a hard exclusion — even if the company carries on a primary production business. Trusts have a more nuanced position (covered below), but the trust entity itself does not qualify.
2. The ACCU must be a “Primary Producer Registered Emissions Unit” (PPREU). This means it must have been issued under the Carbon Credits (Carbon Farming Initiative) Act 2011. Purchased ACCUs from the secondary market can qualify, provided they were originally issued under the CFI Act. International credits never qualify.
3. The ACCU must be first held on or after 1 July 2022. ACCUs acquired before this date remain on the standard Division 420 rolling balance method. You cannot retrospectively apply the concessions to pre-existing holdings. If you hold a mixed portfolio of pre-and-post July 2022 units, you’ll run two parallel tax treatments.
4. You must carry on primary production in the same area or a connected area. The carbon project must relate to land where you conduct primary production activities. “Connected area” is defined broadly — it doesn’t have to be the same paddock — but the project area must be related to your farming operations, not a disconnected investment property.
The trust problem
Many Australian farming families operate through discretionary trusts. This is where the concessions get complicated.
The trust itself is not an individual. It cannot access the concessions in its own right. The trust remains subject to the standard Division 420 rolling balance method — meaning the trust will still have annual assessable income or deductions from year-end value movements on unsold ACCUs.
However, when the trust distributes income from the sale of ACCUs to individual beneficiaries who are themselves primary producers in the relevant area, those beneficiaries can treat their share of that income as primary production income for FMD and averaging purposes.
This creates a mismatch:
The trust is taxed each year on the rolling balance (including phantom income on unsold credits). But the beneficiary concessions only apply to income from actual sales. So the trust bears annual tax on unrealised gains, while the concessions only kick in at the beneficiary level when credits are sold.
For family trusts holding large ACCU portfolios long-term, this mismatch can be significant. The trust’s Division 6 net income includes the rolling balance movements, but those amounts don’t qualify as primary production income at the beneficiary level because they don’t arise from a sale.
This is one of the strongest arguments for reviewing your entity structure before registering a carbon project. If an individual farmer holds the ACCUs directly (rather than through the family trust), they get the full benefit of all three concessions — including the deferral that eliminates phantom income entirely. The trade-off is that the income can’t then be distributed to other family members for income splitting. It’s a genuine structuring decision that needs to be worked through with your accountant.
The company exclusion
Companies are excluded from the concessions entirely. This includes Pty Ltd farming companies, even where the company is the sole farming entity for the family. The National Farmers’ Federation has described this as solving “only half the problem” — many farming enterprises, particularly larger operations, run through company structures for asset protection and succession planning reasons.
For companies, the standard Division 420 rolling balance applies without modification. Year-end value movements on unsold ACCUs are included in assessable income at the company tax rate (25% for base rate entities, 30% otherwise). There is no deferral to sale, no FMD interaction (companies can’t hold FMDs anyway), and no averaging.
If you’re farming through a company and considering a soil carbon project, it’s worth modelling whether restructuring — at least for the carbon credit component — would deliver a better after-tax outcome. The answer depends on the size of expected ACCU holdings, time horizon, and interaction with other income streams.
The lease vs service trap
This is the trap that catches the most people.
Many farmers engage a Carbon Service Provider (CSP) or aggregator to manage their soil carbon project. The CSP handles registration, sampling, monitoring and ACCU sales in exchange for a percentage of credits or a management fee. These arrangements are common and often necessary — most farmers don’t want to manage the project themselves.
But the legal structure of the arrangement matters enormously for tax.
The critical distinction
If the CSP arrangement is a service contract (the CSP provides project management services and the farmer retains ownership of ACCUs), the income retains its character as primary production income. The concessions apply normally.
If the CSP arrangement is a lease (the farmer effectively leases carbon rights to the CSP, who then manages the project and receives/sells the ACCUs), the income the farmer receives is lease income — not primary production income. The concessions may not apply. FMD eligibility is at risk. Income averaging is at risk.
The distinction isn’t always obvious from the contract wording. Some agreements are labelled as “service arrangements” but contain lease-like features — exclusive access rights, fixed-term commitments registered on title, CSP control over farming practices. The substance of the arrangement, not the label, determines the tax treatment.
We strongly recommend having any CSP or aggregator agreement reviewed by a tax specialist before signing. A poorly structured arrangement can undo all the benefits of the concessional regime. Once a 25-year carbon project agreement is registered on your property title, it’s extremely difficult to unwind.
Practical planning opportunities
The concessions open up several genuine planning opportunities for eligible farmers:
Strategic sale timing. Because taxation is deferred to sale, you control when you trigger the tax event. If you’ve had a poor farming year with low income, selling ACCUs that year means the income is taxed at a lower marginal rate. If you’ve had a bumper year, hold the ACCUs and sell next year instead. This flexibility didn’t exist under the rolling balance method.
FMD coordination. In a high-income year where you sell both livestock and ACCUs, you can deposit the ACCU proceeds into an FMD to defer that income to a lower-income year. The ACCU income counts as primary production income, so it won’t push you over the $100,000 non-PP income threshold. This is particularly powerful for farmers with volatile income streams.
Averaging smoothing. If you sell a large parcel of ACCUs accumulated over several years, the income can be smoothed through averaging across your prior years’ income base. This is most effective where your average income across the averaging period is significantly lower than the year of the ACCU sale.
Pre-project structuring. If you’re considering a soil carbon project and currently farm through a trust or company, modelling the after-tax outcome of holding ACCUs personally versus through the entity is essential. The concessions can represent a 15-20% effective tax rate differential over the life of a 25-year project.
The bottom line
The primary producer concessions under Subdivision 420-BA are genuinely transformative for eligible farmers. They eliminate the phantom income problem, integrate carbon credit income with the FMD and averaging systems that farmers already rely on, and give you control over when you pay tax.
But the eligibility rules are tight, the trust and company exclusions create real problems for many family farming structures, and the lease vs service distinction in aggregator agreements can silently strip away the benefits. Getting advice before you register a project — not after — is the single most important step.
For the general Division 420 rules that apply to all ACCU holders, see our companion article: A Complete Guide to ACCU Tax Treatment Under Division 420.
Thinking about a soil carbon project?
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