Energy ministers seek solution to tax trap for landowners seeking compensation for transmission lines

State energy ministers have been tasked with finding a way around a tax trap that eats into compensation payments made to landowners hosting transmission lines, and threatens to further undermine social licence for major poles and wires projects.

Currently, payments for hosting transmission lines are subject to capital gains tax (CGT) because the Australian Tax Office (ATO) considers that the landowner has effectively sold that land.

It’s a detail that is frustrating landowners and farmers, whose advocates have been lobbying for change for a number of years. 

And change may, slowly, be coming after energy and climate ministers from around Australia last week agreed to look at fixing the law, and sorting out what landowners are told about these payments. 

Penny Sharpe and Lily D’Ambrosio, energy ministers for New South Wales (NSW) and Victoria respectively, have been tasked with writing to the Council of Federal Financial Relations and the Board of Treasurers to ask them to “consider legislative tax reform options that address the matter.”

“Ministers agreed to task Senior Officials with improving guidance and information to landholders receiving easement compensation or benefit sharing payments for major transmission infrastructure,” the communique from the Energy and Climate Change Ministerial Council said. 

Governments across Australia are allowed to compulsorily acquire land for transmission. 

Decades ago it was accepted by landowners as a public good. Then came major bungles such as in the original planning for VNI West in Victoria, and the advent of social media groups working to maintain the outrage against all kinds of energy developments.

Over the past five years, states have changed their policies and required that landowners are paid generous compensation for transmission easements.

In Victoria, Ausnet is offering tens of thousands of dollars to both landowners and neighbours.

NSW doubled its payments in 2022 to $200,000 a kilometre, paid out over 20 years. 

But while the headline numbers look generous, the CGT on these leaves landowners feeling like they have been sold short, Farmers for Climate Action says. 

Last year it asked for these payments to be tax exempt, as part of a submission to the Victorian transmission plan.

“FCA’s farmer members in Victoria have expressed concern that landholder payments from the Victorian Government and TNSPs [transmission network service providers] may create a tax liability to the Australian Taxation Office,” it said. 

“Taxing landholder payments at prevailing income tax rates of up to 45% on a land sale removes almost all incentive for hosting transmission infrastructure, and is likely to create further disillusionment among landholders.”

TNSPs are also worried. 

Ahead of the federal election in May last year, their lobby arm Energy Networks Australia made CGT exemption for these payments one of its six priorities for the future government. 

In April, a letter signed by the CEOs of the five east coast TNSPs, Energy Networks Australia, and CitiPower & Powercor in Victoria called for urgent action on the CGT issue.

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