Many legal minds making NZ LAW work

We are an association of independent legal practices, proactively sharing ideas and expertise for the benefit of our clients.

Emissions Trading Scheme

Published: 23rd July 2019

Author: John Sheddan, Sheddan Pritchard Law Ltd

Published in: Fineprint Issue 79

Implications for owners of forestry blocks
New Zealand’s Emissions Trading Scheme (ETS) was established by the Climate Change Response Act 2002. The ETS was created as the vehicle for New Zealand to meet its obligations for the reduction of greenhouse gas (GHG) emissions under the Kyoto Protocol. The purpose of the ETS is to achieve a reduction in GHG emissions through emissions trading. Emissions trading is the exchange of carbon credits between those parties with surplus credits and those who are required to contribute credits as compensation for their production of GHG emissions.

Although the ETS affects nearly all New Zealanders in some way, it has significant impact if you are buying or selling forestry blocks, and/or own a forestry block. The first part of this article focuses on the implications of buying and selling of forestry lots, or land destined to be planted in forests. The second part gives you some background on the ETS, New Zealand’s obligations under the Kyoto Protocol and this country’s acceptance of the Doha Amendment.

Buying land with trees
Buying land with forestry lots is a serious business. As well as the usual due diligence you would undertake in buying any rural property, you need to determine the status of the trees under the ETS. There are a number of tree-type issues you need to think about.

Were the trees planted pre-1990 or post-1989? Do the tree lots fall within the ETS? If so, are the accumulated carbon credits included in the purchase? Are there any forestry rights on the land? Is there a replanting obligation, if or when the trees are harvested? Can the trees be replanted with similar cropping trees or must the land, due to its nature, be removed from production and be planted in permanent forest with trees such as natives like totara, or exotics such as redwoods? As the future landowner, all these obligations are likely to fall on you to manage.

Tax
You will also need to think about the taxation implications relating to your purchase of a forestry lot.

Planting established for shelter purposes, beautification, or erosion control, is likely to be incidental tax-wise and does not bear special consideration.

Established tree lots planted for harvest, however, create special tax considerations and you will need some professional advice on how to deal with this.

Trees planted for harvest, called ‘standing timber’, create a taxable activity on realisation, for example, harvest or sale. On harvest, the profit – after the deduction of expenses – is taxed.

Deductible costs include the purchase cost of the trees if the land the trees are on has been purchased after planting. As a result, as the purchaser you will want to ensure that the value of the trees on purchase is as high as possible.

If you’re the vendor, however, you will want to have the market value of trees as low as possible as this profit is taxable on settlement. Vendors must note that the sale triggers an immediate tax liability.

It’s vital to understand the implications of tree lots in the negotiation of any sale and purchase from both a taxation viewpoint and to ensure all the legal i’s are dotted and the t’s are crossed. The sale and purchase agreement must address the trees and their agreed values, or the valuation mechanism. If this is not done satisfactorily, the vendor or purchaser could be left with an unforeseen tax problem.

Inherent risks of forestry
Harvesting forestry lots brings its own challenges. It is one of New Zealand’s most hazardous occupations requiring specialist machinery and skills. Health and safety during harvest is of major concern.

Forestry harvest may result in land slips or water runoff, including soil or prunings and harvest debris (called slash). Environmental and infrastructure damage may result downstream as a result of systematic clearing of the land, particularly in light of the violent weather extremes that New Zealand is now experiencing. It may take some years before the roots of new plantings mature to sufficiently bind the land that the original trees have been harvested from.

The National Environmental Standards for Plantation Forestry (NES-PF) came into effect on 1 May 2018 and aim to address these environmental risks of forestry. Under the NES-PF harvesting your tree lot may require resource consent due to the risk to the environment of land instability post-harvest. The NES-PF applies to any forest of at least one hectare that has been planted for commercial purposes and will be harvested. There may also be additional resource consent requirements associated with forestry activities; you should check with your local authority.

Why bother with forestry?
Having read the above, you may ask yourself why you would invest in a forestry block? To put it simply, planting and owning eligible forestry allows the forest owner to collect and sell carbon credits, effectively providing an ongoing income stream.

As well, you can satisfy yourself that you are helping New Zealand (and indeed the world) reduce its GHG emissions under its obligations under the ETS, about which we have some broad brushstroke background below.

New Zealand’s role
The United Nations Framework Convention on Climate Change (UNFCCC) was ratified in 1994. This was followed by the Kyoto Protocol in 1997 that established legally binding obligations on participating signatories to reduce their GHG emissions; its first commitment period ran from 2008–2012. The second period runs until 2020 and was established under the Doha Amendment, which New Zealand accepted in 2015.

Each UNFCCC signatory country elected limits for their emissions and has determined goals within their capacities, known as Nationally Determined Contributions (NDCs). New Zealand’s NDC target is to reduce its GHG emissions by 30% below 2005 levels by 2030 by:

1. Reducing greenhouse emissions
2. Planting more trees, and
3. Buying surplus reductions from other countries to offset New Zealand’s GHG emissions.

The ETS puts a price on carbon to act as a disincentive to emit – the incentive is to plant trees.
The measurement of carbon emissions is the New Zealand Unit (NZU); one NZU is the equivalent of one tonne of GHG. At the time of writing, the government caps one NZU at NZ$25.

The objective is that carbon producing industries must reduce or minimise their production. If these industries cannot achieve a significant reduction in gas emissions, they must purchase and contribute sufficient NZUs to offset their carbon production – the outcome being that each producer is carbon neutral. Currently agriculture is not included in the ETS (although it has a reporting requirement). Its participation (or lack of) is currently a topic for much discussion as agriculture is estimated to contribute nearly 50% of New Zealand’s GHG emissions.
In the forestry sector, NZUs produced annually from eligible forest areas may be sold to those GHG-producing industries that are obligated to compensate for their GHG emissions. Planting and owning eligible forestry allows a forest owner to collect and sell the carbon credits, effectively providing an ongoing income stream from mature trees. To assist New Zealand in meeting its GHG reduction obligations and boost regional economies, the government has instigated the One Billion Trees Programme, with a goal of planting one billion trees by 2028.

Forests are good for us
We all need to play our part in reducing this country’s GHG emissions and making our environment better for ourselves and our children. Planting trees goes a long way to help New Zealand meet its international agreements.

If you are considering buying a forestry block, intending to establish a plantation, or are selling your trees, do talk with us and your accountant early on.

  • Auckland
  • Bay of Plenty
  • Canterbury
  • Coromandel
  • Gisborne
  • Hawke's Bay
  • Kapiti Coast
  • Manawatu - Wanganui
  • Marlborough
  • Nelson
  • Northland
  • Otago
  • Southland
  • Taranaki
  • Waikato
  • Wairarapa
  • Wellington
  • West Coast

Price Baker Berridge

Price Baker Berridge is a boutique law firm specialising in Unit Titles and Body Corporate law. Our wealth of experience includes Leaky Building Litigation and Resolution, Meetings, Levies, Rules and Redevelopments.

We also provide a full range of general legal services, including Property, Commercial, Trusts, Litigation and Employment Law.

Our clients, from individuals to large corporates, value our commitment to providing cost-effective advice and solutions.

Region: Auckland

Phone: 09 836 1079

Rejthar Stuart Law

A long established law practice providing comprehensive and specialised legal advice and services to a diverse range of commercial and private clients.

Established in 1997 the firm has grown over the years to become a two solicitor, two legal executive firm representing both private and commercial clients.

Region: Bay of Plenty

Phone: 07 577 6565

Corcoran French

Corcoran French is a firm of Christchurch and North Canterbury lawyers with over 120 years experience in providing legal services to Christchurch and the wider Canterbury region. We have offices in Christchurch City and Kaiapoi. We can also meet you at shared offices at Akaroa.

We welcome new clients and are committed to building strong long-term relationships that are rewarding for our clients.

Region: Canterbury

Phone: 03 379 4660

Purnell Lawyers

There is nothing as inevitable as change. Since opening for business early last century, we at Purnell Lawyers have seen many changes both in name and in the people who have made up the members of our team. We have been privileged to have served the public throughout all of these times. 

We are confident that we will continue to bring top quality legal services to our clients well into the future.

Region: Coromandel

Phone: 07 868 8680

Woodward Chrisp

At Woodward Chrisp we strive to meet the needs of our clients by providing a wide range of high quality legal services within a supportive and collaborative environment.

Woodward Chrisp is the amalgamation of two long established Gisborne legal firms: Woodward Iles & Co and Chrisp and Chrisp. Today’s partners are Ross Revington, Adam Simperingham, Jeff Allen and Ellie FitzGerald.

Region: Gisborne

Phone: 06 869 0900

Gifford Devine

For all life’s matters, the team at Gifford Devine have your back. Since 1896, our lawyers have been providing straight-talking, practical advice and advocacy to people, families and businesses in Hawke’s Bay.

As your legal champions, we’ll serve you as a trusted adviser, listen to your needs, offer plain English advice, and find a solution to get you the best possible outcome.

We have the expertise to identify potential legal issues, to help you make important decisions, and to realise your goals. We’re your legal champions for all reasons and at all stages of life.

Region: Hawke's Bay

Phone: 06 873 0420

BMC Lawyers

BMC lawyers has built a reputation for providing quality service and delivering real results. Our strength is our broad-ranging legal experience that gives us the ability to match clients with the right mix of legal skills for their particular needs.

Our legal professionals are passionate about what they do and work alongside a talented team of support and administration staff to make a real positive difference to our clients.”

Region: Kapiti Coast

Phone: 04 296 1105

Innes Dean Tararua Law

Our history in the Manawatu and Tararua Districts dates back to 1884. With offices in Palmerston North and Pahiatua our firm stands on a long tradition of high standards and sound legal advice.

Our size means that every one of our clients are dealt with on a professional, yet personal basis.

Region: Manawatu - Wanganui

Phone: 06 358 6075

Wain & Naysmith

Based in Blenheim, Wain & Naysmith Lawyers is a full service law firm, and a powerhouse for property, family and business law.

We pride ourselves in providing clear and cost effective legal solutions and practical advice for you, your family and your business.

Region: Marlborough

Phone: 03 520 6103

Knapps Lawyers

As a firm, we promise to look after you and treat you in a manner that we would expect to be treated by a professional services provider; we promise to use every available legal remedy available to us to resolve your issue and to do what you ask us to do in a timely manner.

We will hold in strict confidence all information that we acquire through our work for you and which concerns your business or personal information.  The only exceptions are where you authorise us to disclose such information or where we must do so by law.

Region: Nelson

Phone: 03 544 7888

Thomson Wilson

Thomson Wilson is a full service law firm based in Whangarei. We’ve been trusted lawyers for the Northland community and beyond for 75 years.

We act for individuals and families, businesses, public sector and other organisations. Whether you need no-fuss advice on a simple matter, or a team of legal experts. 

Our staff provide advice in most areas of the law, including property law, business law, trusts and estates, separation and divorce, resource management, criminal law and more.

We also offer expertise in specialist areas such as Maori land, local government law, farming and forestry.

Region: Northland

Phone: 09 430 4380

Sumpter Moore

Sumpter Moore is based in South Otago and has a proud history of having provided a broad range of legal services to personal clients and businesses since 1873. Generations of families have been able to rely on our advice and assistance, because Sumpter Moore has stood behind that advice for over 100 years.

Sumpter Moore has fully serviced offices in both Balclutha and Milton, our relatively small size means we can work closely with our clients and you know who will be personally responsible for your legal affairs. It allows us to have close control over the quality and timeliness of the advice you receive.

Region: Otago

Phone: 03 418 0066

Sheddan Pritchard Law Ltd

Incorporating traditional values and a fresh perspective, Sheddan Pritchard Law is here to assist you with all your legal needs. 

Our friendly and team-driven approach underpins our firm’s values, recognising the importance of putting people first and allows us to connect and nurture professional relationships with new and existing clients within our local community of Gore, as well as throughout New Zealand and extending overseas.

Region: Southland

Phone: 03 209 0030

RMY Legal

Having been a cornerstone in the New Plymouth and Taranaki legal community since the 1930s we offer in-depth knowledge coupled with legal expertise and always put the needs of you and your business at the heart of what we do.

Not only do we offer a first class service to clients throughout Taranaki, we are passionate about what we do and our success stems from delivering advice in clear and understandable terms.

Region: Taranaki

Phone: 06 769 8080

Le Pine & Co

Le Pine & Co is the largest provider of legal services in the Taupo District, having provided legal services in the Taupo District and the Central North Island since 1953. Le Pine & Co is a full service firm, providing legal services in most areas of the law. The Le Pine & Co team offer a variety of specialised services from offices in Taupo, Putaruru and Turangi. The team are solution focused and will help unravel the mysteries of the law for you.

Le Pine & Co enjoys supporting and contributing to the Taupo community and many of its organisations. Building bike trails with Bike Taupo, setting up trusts for inspiring local projects, supporting the youth of Taupo - the team at Le Pine & Co gets involved in its community in a wide variety of ways. 

Region: Waikato

Phone: 07 378 5030

Gawith Burridge

Gawith Burridge traces its history back to 1875 when Charles Gawith first set up his practice. Since then the firm has undergone many changes, including a merger between Gawith & Co and Burridge & Co in 1998 to form our current practice.

Our firm draws on the breadth of expertise available from some of the region’s most senior legal practitioners, as well as the skills of those who have moved here from larger corporate environments.

As a result, we provide clients with a comprehensive range of legal services right here in the Wairarapa. We can provide you with legal assistance whether you are an individual or a company, with everything from setting up a Will to selling your farming business. 

Region: Wairarapa

Phone: 06 370 0000

Greg Kelly Law Ltd

Greg Kelly Law Limited is a boutique Wellington law firm specialising in trust and elder law. Our practice areas are wills, estates and trusts.

We act for private and institutional clients establishing and administering trusts, wills and estates. We also provide quality advice to legal and accounting firms in New Zealand and overseas. In particular, we can assist with legal opinions, obtaining and resealing probate, and estate and trust litigation.

Region: Wellington

Phone: 04 499 5193

Hannan & Seddon

The Law Firm of Hannan & Seddon dates back to September 1867.

The firm's offices were in Werita Street from 1867 until 1982 when the firm moved to Tarapuhi Street and then to its current spacious premises at 61 Guinness Street in 1998.

The name Hannan comes from Mr Michael Hannan whose son John Hannan (Jack) joined the firm in 1908. Jack Hannan remained in partnership until he passed away in 1974 at the age of 90!

The name Seddon comes from Mr T E Y Seddon (son of Premier Richard John Seddon from Kumara) who joined the firm in the 1920's. The other prominent Solicitor at Hannan & Seddon was Cyril McGinley who joined the firm in the late 1920’s and retired as a Consultant in 1997 aged 87.

Currently we have two Partners within our firm. Tony Sullivan who has been with us for 29 years and Colin Smith, 26 years. The firm also has two long serving Legal Executives Elaine Knowles and Beverley Walsh.  

Region: West Coast

Phone: 03 768 4169

All the information published on this website, or in any article herein is true and accurate to the best of the authors' knowledge. Information on this site should not be a substitute for legal advice. No liability is assumed by NZ LAW Limited, or individual NZ LAW member firms for losses suffered by any person or organisation relying directly or indirectly on information published on this site. Views expressed in any article are the views of the authors individually and do not necessarily reflect the view of NZ LAW or their member firms. Information appearing on this site may only be reproduced with prior approval from NZ LAW Limited Head Office, and credit being given to the source. © NZ LAW Limited