Sale of Water and Tax Issues


1. Capital Gains Tax.

If anyone is selling water entitlements including shares in Murrumbidgee Irrigation or Coleambally Irrigation they must be aware that if a profit is being made they will be paying Capital Gain Tax unless the water entitlements were purchased or received by the person in their own name prior to September of 1985. Capital Gains Tax is dealt with on the same basis as if you were selling land. The tax payable is halved if the owner is a real person entity (not a company) and the asset has been owned for more than 12 months. If the water entitlement is owned by a partnership, then of course it is halved or divided between the partners.

2. Income Tax

(a) Sale of temporary water entitlements. Any sale of temporary water entitlements for a year results in income tax payable on the sale proceeds depending of course on what other income and liabilities are incurred during that particular financial year.

(b) Permanent Sale of Water. There is not an income tax liability in relation to the permanent sale of water. The exception is maybe that anyone applying for funding for on farm projects with the Federal Government will receive a sum of money for the extinguishment of a certain number of shares in either Murrumbidgee Irrigation or Coleambally Irrigation. Any amount received over and above the actual value of the share or water entitlement, can be regarded as income tax. As we speak the Federal Government is looking at waiving the income tax liability for such projects however, before a person enters into a contract for such funding projects they should be very careful and be aware of what their taxation liabilities maybe prior to entering into the agreement.

(c) Some agreements we have seen the monies are not payable straight away but are staggered over a period of time, so the agreement must reflect that any “income” is regarded as being received in those financial years rather than having an upfront tax liability. Hopefully, the Government will allow such transactions to be income tax free.

Aired February 2011 on Radio 2RG Griffith