The GasFields Commission Queensland has recently published a
Land Access Checklist for Landholders', which lists seven
general principles to assist landholders in negotiating land access
agreements with coal seam gas operators.
This publication serves as a timely reminder that land access
negotiations can have a serious impact on a landholder's use of
their land and that landholders should seek advice during the
negotiation of their compensation agreement.
Tax consequences of compensation payments are often overlooked
during these negotiations but it is essential to consider the tax
implications before negotiations are finalised.
From a tax perspective, the characterisation of a payment as
either income or capital can have drastically different tax
results. This is a complex area and guidance given by the
Australian Taxation Office on the tax treatment of compensation
payments may be difficult to understand.
If compensation is paid for the loss of value or damage to the
land, this will generally be a capital payment, which reduces the
cost base of the land and means no tax is payable on the
compensation payment. This is generally the best outcome for the
If compensation relates to other matters, landowners will
generally get the best after-tax result if the payment is regarded
as being a capital receipt, as they will be able to take advantage
of various capital gains tax concessions.
However, if the compensation is for loss of income, it will be
In some cases where compensation relates to loss of income and
some other issues, it may be possible to achieve an outcome where
the whole amount is treated as capital for tax purposes if the
compensation is expressed as a lump sum compensation payment
without identifying the separate components of the payment.
However, to achieve this outcome it will be important that tax
advice is taken early in the negotiation process and that the
compensation agreement is carefully drafted.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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