Tax treatment

Issuance of BRUs

Disposal of CDRCs

Create a CDRC

The BidCarbon marketplace provides a platform for buying and selling Carbon Data Rights Certificates (CDRCs).

Key features:

Buy CDRCs:

● Access: Buyers can access a wide range of CDRCs available for purchase.

● Search and Filtering: Use the search and filtering options to find CDRCs that meet specific criteria, such as price, quantity and source.

● Buyer Protection: The Marketplace provides buyer protection to ensure the integrity and authenticity of CDRCs.

Sell CDRCs:

● Listing: Sellers can list their CDRCs on the Marketplace, providing detailed information about each certificate.

● Pricing: Sellers can set prices for their CDRCs based on market conditions and valuations.

● Transaction security: the BidCarbon marketplace ensures that transactions are secure, protecting both buyers and sellers.

Transaction Process:

● Validation: All CDRCs for sale are validated.

● Payment: The marketplace supports a variety of payment methods to ensure convenient and secure transactions.

● Transfer: Once the purchase is complete, the seller will transfer ownership of the CDRCs to the buyer via the Online Services.

The BidCarbon removal units (BRUs) within those CDRCs are then retired from the BidCarbon Units and Certificates (BUC) registry.

Therefore, retirement of a BRUs indicates that it has been utilised and is no longer available for sale or trade on the carbon market.

Buy and sell CDRCs via BidCarbon marketplace

The holder of an CDRC, other than an CDRC issued to you by the Technical Governance Committee, can claim a deduction for the costs of acquiring the CDRC.

If you become the ownership of an CDRC because you are issued an CDRC by the Technical Governance Committee, you

● can deduct expenses associated with preparing or lodging an application for a certificate of entitlement or offsets report with the Technical Governance Committee.

Basic treatment – claiming deductions for the cost of acquiring CDRCs

You include in your tax return the change in value of CDRCs you hold over the income year. If the value of the CDRCs you hold at the end of the year is:

● more than the value of the CDRCs you held at the beginning of that year, the difference is included as part of the assessable income.

● less than the value of the CDRCs you held at the beginning of that year, you may claim a deduction equal to that difference.

Some countries also have special rules for working out the value of CDRCs you hold at the beginning and end of the income year.

Accounting for the change in the value of CDRCs you hold over the income year

The value of the CDRCs you hold at the start of an income year is the same as the value of the CDRCs you held at the end of the previous income year.

If you held no CDRCs at the end of the prior income year, the value of CDRCs you hold at the beginning of the year is nil.

How to work out the value of CDRCs you held at the start of an income year

The value of an CDRC you hold at the end of an income year is worked out using one of three methods:

● FIFO (first-in first-out) cost method

● Actual cost method

● Market value method.

In the first income year that you hold CDRCs you must choose one of these methods before you lodge your income tax return. If you do not choose the actual cost or market value method, the FIFO cost method will apply.

In some countries, once you've made an election, you can't change it and you must continue to use this method for at least the 3 income years following the first income year in which you made the election.

Cost of an CDRC

The cost of an CDRC, depends on whether it is an CDRC issued to you by the Technical Governance Committee or you purchased an existing CDRC from its holder.

The cost of an CDRC issued to you by the Technical Governance Committee is its market value immediately after you begin to hold the unit.

● The cost of other CDRCs you acquire, is the total of the expenditure that you incurred in becoming the owner of the certificate that you can claim a deduction for.

FIFO cost method

The FIFO cost method requires you to work out the value of the CDRCs you hold by summing up the cost of the CDRCs you hold at the end of the income year, assuming that you disposed of any CDRCs in the same order in which you acquired them.

Actual cost method

The actual cost method for working out the value of the CDRCs you held at the end of the income year requires you to identify and add up the cost of all the certificates you actually hold at the end of the income year.

Market value method

The market value method for working out the value of the CDRCs you held at the end of the income year requires you to work out the market value of all the CDRCs you held at the end of the income year.

How to work out the value of CDRCs you held at the end of an income year

Disposing of CDRCs

The amount you are entitled to receive because you ceased to hold an CDRC is included in your assessable income in the income year in which you ceased to hold the certificate.

CDRCs becoming taxable

Example: 

Jaya Limited is a Chinese mainland tax resident. They hold a CDRC (consisting of 1,000 BRUs) in the BUC Registry.

Jaya Limited sold the CDRCs to BSO New Zealand Limited. They transferred the CDRCs to the BUC Registry account of BSO New Zealand Limited.

Before the transferred occurs, Jaya Limited is treated as having sold their CDRCs to someone else for their market value. The CDRCs are then treated as being bought back by BSO New Zealand Limited in New Zealand for their market value.

Jaya Limited is taxable.

Modified tax treatment of CDRCs

The basic tax treatment of CDRCs is modified in 4 circumstances:

● non arm's length transactions, or transactions between associates, not at market value

● disposal of CDRCs for a purpose other than gaining assessable income

● insolvency of asset owners

● CDRCs become or cease to be taxable in eligible countries.

Non arm's length transactions or transactions between associates not at market value

If the transfer of an CDRC was not for market value consideration, the transaction is treated for tax purposes as if the CDRC was sold for market value if the transferor and the transferee either:

● didn't deal with each other at arm's length, or

● are associates.

This means for the purpose of working out the amount they are entitled to deduct or to be included in the assessable income of the buyer and seller respectively:

● the buyer is treated as having paid the seller the market value of the CDRCs to acquire them and

● the seller is treated as having received their market value from the buyer to acquire them.

Disposal of CDRCs for a purpose other than for gaining assessable income

If you cease to hold a CDRC and you disposed of it for a purpose other than gaining assessable income, you are required to include in your assessable income for that year an amount equal to any deductions claimed for:

● the cost incurred in becoming the holder of the CDRC

● the cost incurred in ceasing to hold the CDRC.

This doesn't apply in cases where you ceased to hold the units where the non-arm's length rule applies.

If the disposal is a result of a transfer, the entity who acquired the unit is treated as if they had acquired it for the disposer's cost to acquire it. That is the amount the disposer needs to include in their assessable income. If you are the disposer, you must inform the acquirer of this amount.

Example: Acquiring an CDRC to offset emissions from your entities

Jaya Limited acquires and surrenders CDRCs to offset the carbon footprint of their entities in the 2022–23 income, by instructing the issuer to cancel the CDRC.

Jaya Limited purchased the CDRCs for £5,000. Jaya Limited is entitled to claim a deduction of £5,000 for the cost of the CDRCs in the 2022–23 income year.

Insolvency of asset owners

A disposal of an CDRC may occur due to the insolvency of the owners. On the insolvency of the owners an amount is included in their assessable income equal to the deductions claimed by the owners for:

● the costs they incurred in becoming the owners of the CDRC (other than the costs of eligible offsets projects that are deductible under general deduction provisions)

● the costs they are entitled to deduct in ceasing to be the owners the CDRC.

CDRCs become or cease to be taxable in eligible countries

Changes to an entity’s tax residency status means there will be tax consequences for their CDRC.