Bills Digest no. 122 2009–10
Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010
Date introduced: 2 February 2010
House: House of Representatives
Portfolio: Climate Change and Water
Commencement: Generally, at
the same time as section 3 of the Carbon Pollution Reduction Scheme Act 2010 (CPRS Act).[1] This particular section commences on the 28th day after the CPRS Act receives
Royal Assent. However, if the related Acts have not themselves first received
Royal Assent by the 28th day, the CPRS Act does not commence at all. These related
Acts are:
- Australian
Climate Change Regulatory Authority Act 2010
- Carbon
Pollution Reduction Scheme (Charges – Customs) Act 2010
- Carbon
Pollution Reduction Scheme (Charges-Excise) Act 2010
- Carbon
Pollution Reduction Scheme (Charges-General) Act 2010, and
- Carbon
Pollution Reduction Scheme (Consequential Amendments) Act 2010 (this Bill).
Links: The relevant links to the Bill, Explanatory Memorandum
and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
This Act amends various existing Commonwealth
legislation as a consequence of the passing of the main legislation
implementing the Government’s Carbon Pollution Reduction Scheme referred to
above as the CPRS Act. This latter Act is currently before Parliament. The following
legislation and regulations are affected by the CPRS Consequential Amendments
Bill:
- Anti-Money Laundering and Counter Terrorism Financing Act 2006
- Australian Securities and Investments Commission Act 2001
- Corporations Act 2001
- Financial Management and Accountability Regulations 2007
- National Greenhouse and Energy Reporting Act 2007
- National Greenhouse and energy Reporting Act 2007
- Ozone Protection and Synthetic Greenhouse Gas Management Act
1989
- Renewable Energy (Electricity) Act 2000
- A New Tax System (Goods and Services Tax) Act 1999
- Income Tax Assessment Act 1936
- Income Tax Assessment Act 1997
- Income Tax (Transitional Provisions) Act 1997, and
- Taxation Administration Act 1953.
The brief history of the
passage of the Carbon Pollution Reduction Scheme Bills to date
This is the third time this form of Bill, as part of the
eleven-Bill Carbon Pollution Reduction Scheme (CPRS) legislative
package, has been introduced into Parliament.
The original Bill, the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2009, along with nine other
CPRS Bills, was first introduced into Parliament on 14 May 2009. On 28 May, an
eleventh Bill was introduced which completed the package. All the CPRS Bills were
passed by the House of Representatives on 4 June 2009—with government
amendments made to some of the Bills. On 13 August 2009, the Senate voted down
all of the Bills at second reading on 13 August 2009.
Following this, the Carbon Pollution Reduction
Scheme (Consequential Amendments) Bill 2009 [No. 2], along with the other Bills
in the CPRS package, were re-introduced into Parliament on 22 October
2009.[2] They were passed unamended by the House of Representatives on 17 November, thus
satisfying the 3 month ‘waiting period’ required under the double dissolution
provisions of the Constitution.[3] This package of Bills was introduced into the Senate on 17 November 2009.
Following much negotiation, on 24 November the Government released a number of
amendments to a number of the Bills, including the Carbon
Pollution Reduction Scheme (Consequential Amendments) Bill 2009 [No. 2], and
these were subsequently adopted by the Senate Committee of the Whole. However, following the Liberal party leadership spill on 1 December, the new
leader of the Coalition, Tony Abbott, stated that he would seek to have Senate
consideration of CPRS Bills delayed until Parliament reconvened in 2010, or in
the absence of a delay, vote against the Bills at that time. With no delay
forthcoming, on 2 December 2009, the Senate voted down the CPRS Bills for a second
time. This provided the Government with a trigger to call for a double
dissolution election.
The CPRS Bills, including the Carbon Pollution Reduction
Scheme (Consequential Amendments) Bill 2010[4], were again reintroduced into Parliament on 2 February 2010. They passed the
House of Representatives on 11 February and subsequently debate was adjourned
in the Senate on 24 February. This Bill incorporates the amendments that were
made in the Senate in November and December 2009 to the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2009
[No. 2] prior it being voted down. Overall, however, the content of the current
Bill to which this particular digest relates, now titled the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2010, is very similar to both the
first and second Bills. As such, this Digest is largely unchanged from the Digest produced in
October 2009 for the second Bill.
For commentary on recent developments regarding the proposed
CPRS, see relevant sections in the Digest on the Carbon Pollution Reduction
Scheme Bill 2010.
The proposed measures are based on the above mentioned Government
White Paper entitled ‘Carbon Pollution Reduction Scheme: Australia’s Low
Pollution Future’ released by the Government on 15 December 2008. A link to
that document is here. After the Senate negated the second
Bill it announced that the CPRS legislation would be reintroduced into
Parliament in the first sitting period for 2010.[5]
The Senate Standing Committee on Economics completed its
inquiry and report on the Exposure Draft of the Carbon Pollution Reduction
Scheme Bill 2009 and related Bills, one of which is the CPRS Consequentials
Amendments Bill on 16 April 2009. Details of the inquiry are at http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/info.htm.
The exposure draft legislation for the CPRS, one of which is
the CPRS Consequentials Amendments Bill was also considered under broader terms
of reference by the Senate Select Committee on Climate Policy, which reported
on 15 June 2009. Details of this inquiry are at http://www.aph.gov.au/SENATE/committee/climate_ctte/index.htm.
The Senate Select
Committee on Fuel and Energy’s terms of reference also include inquiry into the
impact of an emissions trading scheme on the fuel and energy industry. The
Committee released an interim report on 7 May, before its final report due by 30
March 2010. Details of the inquiry are at http://www.aph.gov.au/SENATE/committee/fuelenergy_ctte/index.htm.
Please refer to the Library’s Bills Digest on the Carbon
Pollution Reduction Scheme Bill 2009 [No. 2] and the Library’s Bills Digest on the Carbon Pollution Reduction
Scheme Bill 2010.
The pros and cons of the proposed Carbon Pollution Reduction
Scheme are extensively discussed in the Library’s Bills Digest on the Carbon
Pollution Reduction Scheme Bill 2009 [No. 2] and the Library’s Bills Digest on
the Carbon Pollution Reduction Scheme Bill 2010.
Likewise, the position of the
various political groups, as of the date of publication, are discussed in the
Library’s Bills Digest on the Carbon Pollution Reduction Scheme Bill 2009 [No.
2] and the Library’s Bills Digest on the Carbon Pollution Reduction Scheme Bill
2010.
The financial impact of the proposed Carbon Pollution
Reduction Scheme is outlined in the Library’s Bills Digest on the Carbon Pollution
Reduction Scheme Bill 2010.
Item 1A inserts a new definition of ‘eligible
emissions unit’ into the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (AML/CTF Act). An eligible emissions unit is
defined in clause 5 of the Carbon Pollution Reduction Scheme Bill 2010
(CPRS Bill) as an Australian emissions unit (AEU) or an eligible international
emissions unit. These are emission units that are able to be surrendered by
liable entities under the proposed Carbon Pollution Reduction Scheme (CPRS) to
acquit their responsibilities under that scheme.
Briefly, an AEU is an emission unit issued by the proposed
Australian Climate Change Regulatory Authority (the Authority). Eligible
international emissions unit are certain emissions units arising from the operation
of the ‘flexible mechanisms’ (such as the clean development mechanism) set up
under the Kyoto Protocol to the United Nations Framework Convention on Climate
Change. They may include other non-Australian sourced emissions units at a
later date as the CPRS develops. The Library’s Digest on the Carbon Pollution
Reduction Scheme Bill 2009 [No. 2] contains further details on the Kyoto
Protocol, flexible mechanisms and the above-mentioned Convention.
Item 1C will amend the AML/CTF Act so that an agent
of a person acting as an agent of another person acquiring or disposing of an
eligible emissions unit has to verify the identity of their principal.
Item 1 amends the Australian Securities and
Investment Commission Act 2001 so that both and AEU and an eligible
international emissions unit are financial products for the purposes of this
Act. Amendments in Item 2 mean that providing a service in respect of
these units is not the provision of a financial service for the purposes
of this Act.
Item 6 amends the Corporations Act 2001 so
that both an AEU and an eligible international emissions unit are financial
products for the purposes of this particular Act.
Items 13 to 65 amend the National
Greenhouse and Energy Reporting Act 2007 (NGER Act) so that previous
references to the Greenhouse and Energy Data Officer (Officer) in this Act now
refer to the Australian Climate Change Regulatory Authority (the Authority).
All the functions exercised by this Officer would now be exercised by the
Authority.
Items 68 to 83 amend the Renewable Energy
(Electricity) Act 2000 so that the functions of the Renewable Energy
Regulator under this Act would be exercised by the Authority.
Items 87 to 97 of this Schedule contain
provisions that allow the transition of functions in relation to the CPRS,
reporting of greenhouse gas emissions under the NGER Act and renewable energy
to the Authority. Note in particular that under item 93, definitions of
‘Office of the Renewable Energy Regulator’, ‘protected document’, ‘protected
information’ and ‘Regulator’ will continue to apply despite the repeal of the those
provisions in the Renewable Energy (Electricity) Act 2000. Item 96 also provides that if before the commencement of this item, if the emission
unit accounts held by the Commonwealth with the Authority were described by
specific terms and designated by particular authorities, they will have be
considered effective under the new CPRS Act.
Items 98 to 194 amend the NGER Act.
Item 101 inserts new subsection 3(2) so that
one of the formal objectives of the NGER Act is to underpin the CPRS Act by
imposing various registration, reporting and record-keeping requirement.
Item 107 adds new subsection 2 to section 5 of
the NGER Act. The effect of this amendment is to ensure that the reporting
requirements of the NGER Act apply to the exclusion of laws and regulations of
a state or territory, except to local governing bodies or certain state and
territory statutory authorities.
Item 109 repeals existing section 6 of the NGER Act
and inserts new sections 6, 6A, 6B, and 6C into that Act. These provisions define where this Act applies. In addition to
the existing provisions new section 6A ensures that the NGER Act applies
in respective of Australia’s sovereign rights in its exclusive economic zone
and continental shelf. Consistent with Australia’s obligations under the Law of
the sea, new Section 6C contains some customary restrictions about the
application of the NGER Act to foreign ships in Australia’s territorial sea,
exclusive economic zone and continental shelf.
New section 6B ensures that the NGER Act will also
apply to the Joint Petroleum Development Area, between East Timor and Northern
Australia.
Items 110 to 145 amend section 7 NGER Act so
that the various definitions of terms used in the amended Act are updated.
Item 146 inserts new sections 7A, 7B, 7C and 7D into the NGER Act. These amendments are vital for the operation
of the CPRS Act. Briefly, these amendments define the following terms for CPRS
Act purposes:
- new section 7A – definition of a greenhouse gas
- new section 7B – definition of a synthetic greenhouse gas
- new section 7C – definition of potential greenhouse gas
emissions embodied in an amount of eligible upstream fuel,
- the term eligible upstream fuel is defined in Clause 5 of the
CPRS Bill to include a wide range of solid, liquid and gas fuels that may be
supplied from either a producer (such as a coal mine) or importer (such as an
oil company) through to the consumer, and
- new section 7D carbon dioxide equivalence of potential
greenhouse gas emissions embodied in an amount of eligible upstream fuel.
These definitions are vital for the operation of Part 3 and
Part 11 of the CPRS Act.
The CPRS operates on the basis of individual facilities. Item
151 amends existing subsection 9(1) of the NGER Act so that the definition
of a facility contained in this subsection applies to the CPRS Act.
In the first instance liability under the CPRS rests on the
person or entity that has operational control over a facility (this liability
may pass to other parties under the CPRS – particularly the entity with
financial control over a facility). Item 172 inserts new sections 11A, 11B and 11C into the NGER Act to clarify which entity has
operational control over a facility if two or more parties satisfy the criteria
in existing section 11 of this Act for determining who controls a facility. It
is important to note that new section 11A defines who has ‘operational control’
over an emitting facility for both the purposes of the NGER and CPRS Acts.
New section 11C of the NGER Act deals with the
operational control of an emitting facility held by a trust with multiple
trustees. Briefly, all trustees jointly nominate one of their number to be in
operational control of an emitting facility for CPRS and NGER
Act purposes. A foreign person, who may be a trustee of a trust in operational
control of an emitting facility, cannot be so nominated, if there is also a
non-foreign trustee. Item 118 of this Bill inserts the definition of
foreign person into section 7 of the NGER Act. Briefly a foreign person for
NGER Act purposes is a non resident, a body corporate incorporated outside
Australia, a body politic of a foreign country or a trust where the majority of
the trustees are covered by these definitions.
Item 173E inserts new sections 15A, 15B and 15C into the NGER Act. These sections require various persons or
entities to register under this Act. These entities or persons are:
- a person or entity who was, or is, liable under the CPRS for the
current eligible financial year, and/or
- a person or entity who, in the current eligible financial year,
supplied an amount of eligible upstream fuel or synthetic greenhouse gas to
another person, and that person quoted an ‘obligation transfer number’ (OTN) to
the supplier.
An ‘eligible financial year’ is defined in Item 5 of
the CPRS Bill as a financial year beginning on 1 July 2011 or later financial
year. It follows that the ‘current eligible financial year’ is simply a current
financial year that starts after this date.
An OTN is defined in Clause 5 of the CPRS Bill as a
number issued under either Clause 44 or 45 of that Bill.
Briefly, these numbers allow a suppliers’ liability for greenhouse gas
emissions embedded in eligible upstream fuels or synthetic greenhouse gases to
be transferred to the recipient of these materials.
Item 181 inserts new sections 22A to 22F in the NGER Act that require liable entities, OTN holders, fuel suppliers and
holders of liability transfer certificates to report to the Authority and to
keep records of such reports. Broadly, these reports are to be provided in the
specified form and contain information that will allow the Authority to
determine the emissions for which the entity or person is responsible under the
CPRS scheme.
Maximum penalties for contravention of these requirements
are 2000 penalty units ($220,000) for individuals and 10 000 penalty units
($1.1 million) for other entities.
Item 184 requires the Authority to publish
information sourced from these reports on its website, especially the
provisional emissions number applying to a particular liable entity.
Clause 5 of the CPRS Bill defines a provisional
emission number as:
- having the meaning given by Part 3 of that Bill, and
- the meaning given by new sections 11B and 11C of
the NGER Act.
Briefly, the provisional emissions number in Part 3 of the CPRS Bill is the amount of greenhouse gases emitted by a liable entity.
New subsections 11B(7) and 11C(7) of the NGER Act define this
number in terms of a formula that expresses this number in terms of emissions
per liable person for those emissions.
This information has to be published by 28 February
following the end of the relevant eligible financial year.
An efficient emissions trading market runs on accurate and
timely information. This particular provision is a significant contribution to
the provision of that information.
Item 189 inserts new section 54A into the NGER
Act. This new section allows the Authority to declare an activity or a series
of activities (including ancillary activities) to be an emitting facility for
CPRS purposes. This may be done at the Authority’s own initiative, or on
application by a non-group entity.
Item 129 inserts a definition of non-group entity
into section 7 of the NGER Act which states that a non-group entity is a person
who is not a member of a controlling corporation’s group. This suggests that a
separate individual (such as a member of the public or a corporation employee)
may approach the Authority to apply for some activity or series of activities
that were not previously classed as an emitting facility to be so classed.
Comment – non-group entity
It may be appropriate to ensure that private individuals or
employees of a controlling corporation that apply to the Authority for an
activity or group of activities to be classed as an emitting facility for CPRS
and NGER be protected against possible recriminations.
Item 194 inserts new sections 74AA-74C into
the NGER Act to strengthen the compliance aspects for the NGER Act.
For example, under new section 74AA, a person who is
a liable entity for a particular financial year, is required to provide a
report under new section 22A, and whose gross emissions exceed the relevant
level specified in regulations, will be subject to a mandatory audit process. A
failure to comply with the audit requirements carries a civil penalty, in the
case of a corporation, of up to 1,000 penalty units ($110 000).
New section 74B enables the Authority to require a
non-group entity (individual) who they suspect of not complying with that Act
to appoint a registered greenhouse and energy auditor. Further, this section
gives the Authority the power to require that an audit of the non-group entity’s
operations be carried out by that appointed auditor.
New section 74C of the NGER Act allows the Authority
to appoint a greenhouse gas and energy auditor without the need to hold a
suspicion of non-compliance.
The synthetic greenhouse gases are hydrofluorocarbons
(HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).
These gases have a much greater global warming potential per tonne than carbon
dioxide (CO2) (ranging from 1000 to 23 000 times more potent
over a 100–year timeframe). Emissions of many of these gases have been rapidly
increasing, as they are used as substitutes for ozone–depleting substances
controlled under the Montreal Protocol. They are used or produced in numerous
industrial processes, mainly as:
- refrigerants for refrigeration and air conditioning equipment
- foam–blowing agents for some thermal insulation applications
- propellants in some aerosols
- extinguishing agents in some systems, and
- insulation gas in electrical switchgear.[6]
Item 199 inserts a definition of sulphur hexafluoride
into section 7 of the Ozone Protection and Synthetic Greenhouse Gas
Management Act 1989 (Ozone Act). This gas is one of the six greenhouse
gases controlled by the Kyoto Protocol and is covered by the CPRS scheme.
Effectively this gas is now included in the controls imposed by the Ozone Act.
Item 203 inserts new section 9A into the Ozone
Act which exempts synthetic greenhouse gases that are part of another
manufactured product, from regulation under that Act. Thus where these gases
are part of another manufactured product they are not covered under the CPRS
scheme.
Item 217 inserts new section 46A into the Ozone
Act that requires manufacturers, importers and exporters of synthetic
greenhouse gases to give a report to the relevant Minister within 15 days of
the end of the relevant quarter in which these action took place, if:
- such actions were not in circumstances covered by regulations
made under paragraph 13(1A)(b) of the Ozone Act, and
- in the case of an importer the above criteria did not apply and
the import was not covered by paragraph 68(1)(d) of the Customs Act 1901.
There is no requirement for the Minister to make these
reports available to the Parliament. However, a copy must be given to the
proposed Australian Climate Change Regulatory Authority.
Paragraph 13(1A)(b) of the Ozone Act allows the manufacture,
import and/or export of synthetic greenhouse gases, where it takes places in
these circumstances, to be prescribed in regulations.
Paragraph 68(1)(d) covers goods that are accompanied or
unaccompanied personal or household
effects of a passenger, or a member of a crew, of a ship or aircraft.
Thus, amounts of synthetic greenhouse gases covered by the
Ozone Act imported as personal luggage are covered by the provisions of the
Ozone Act. Given the very high unit value of some of these gases it may have
been possible to profitably import an amount of these gases as personal luggage
and not had these imports covered by this Act, or regulated by the CPRS Scheme,
but for this particular provision.
Item 1 of Schedule 2 inserts new subsection
9-10(3B) into the A New Tax (Goods and Services Tax) Act 1999 (GST
Act). The effect of this amendment is that the supply of an eligible emissions
unit of a Kyoto Unit is a supply of a personal property right under tax
legislation and therefore subject to the Goods and Services Tax (GST).
Briefly, liability for GST arises where a registered
business supplies goods or services to its customers. The GST is imposed at the
rate of 10 per cent. Typically, it is included in the price paid by the recipient
of the goods and services. The supplier must account for the amount of GST to
the Australian Taxation Office.
If the recipient of goods or services is a registered
business entity, it will normally be able to claim a credit for the amount of
GST it has paid, provided it holds a tax invoice. This credit — called an input
tax credit — is offset against any GST on goods or services that the recipient
supplies to its own customers.[7]
The application of GST to AEUs and Kyoto units is
controversial. The following comment from the Taxation Institute explains some
of the major concerns:
The GST is proposed to be applied to trading in emissions
units. This approach is based upon the mistaken belief that an emissions unit
is akin to any other business input (eg a piece of steel) and that consistency
of treatment with other inputs is more important than any compliance costs
imposed on consumers. The Government also believes that the reduction in
compliance costs to the community in respect of the trading of emission permits
“. . . would undermine the objective of meeting Australia’s emissions
reductions in a cost-effective way by providing a preferential GST treatment
for emissions units relative to pursuing other ways of reducing emissions”.
However, loading the cost of emissions permits with inefficient and
distortionary compliance costs only reduces the efficiency of the Carbon
Pollution Reduction Scheme (CPRS). It should be the market price of the
units that encourages other ways of reducing emissions not compliance costs.
The problem is that an emissions unit will not be traded like
a piece of steel, where an order is sent to a supplier, who some days later,
delivers the steel. Rather, due to the design of the scheme which discourages
holding of emission units, the trades will occur in high volumes (with in
excess of 460 million permits available to be traded), electronically, in split
seconds by traders in a market not dissimilar to the stock exchange or the futures
market. Currently, those finance trading markets do not apply GST to dealings
in marketable securities such as shares and options.[8]
Clause 5 of the CPRS Bill defines a Kyoto unit to
mean:
- an assigned amount unit (AAUs)
- a certified emissions reduction unit (CER)
- and emissions reduction unit (ERU)
- a removal unit (RU), or
- a prescribed unit issued in accordance with the Kyoto rules.
The first four of these
units arise under the current Kyoto Protocol. AAUs will not be accepted for
CPRS purposes. An unlimited number of CERs will be accepted for CPRS purposes.
However, some conditions apply to the acceptance of ERUs and RUs for CPRS
purposes. The last dot point refers to any future type of unit issued under the
Kyoto Protocol, or its successor.
Items 3 and 4 insert a reference to the definition
of an eligible emission unit and a Kyoto Unit in the CPRS Bill, into section
195-1 of the GST Act.
Items 2 and 6 ensures that an eligible
emission unit and a Kyoto unit are not ‘real property’ for GST purposes.
Item 10 inserts
new section 70-12 into the Income Tax Assessment Act 1997 (ITAA
1997). The effect of this new section is that a registered emissions unit is
not trading stock for taxation purposes. This does not prevent these units from
being traded.
A registered emissions
unit is defined in new section 420-10 (see Item 19 of Schedule
2) as either an eligible emissions unit or a Kyoto Unit for CPRS purposes
that is entered in the relevant register maintained by the Authority.
Section 70-10, ITAA 1997 defines trading stock as anything
produced, manufactured or acquired that is held for purposes of manufacture,
sale or exchange in the ordinary course of a business.
As noted above, this category does not include the holding of a registered
emissions unit. The special rules applying to the taxation treatment of trading
stock in the income tax legislation do not apply to these units. The following
noted amendments however do establish a taxation regime applying to registered
emissions units.
Item 15 inserts new
section 104-205 into the ITAA 1997. This section defines a new CGT event K1
in relation to an international emissions unit and defines the amount of
capital gain or loss in relation to that unit.
Item 45 inserts the definition of the term
international emissions unit into sub-section 995(1) ITAA 1997. Briefly, this
term is defined as:
- (a) a Kyoto unit (see above discussion), or
- (b) a non-Kyoto international emissions unit.
Clause 5 of the Carbon
Pollution Reduction Scheme Bill 2010 defines this latter term to be either (a)
a prescribed unit issued in accordance with an international agreement (other
than the Kyoto Protocol) or (b) a prescribed unit issued outside Australia
under a law of a foreign country. An example of the latter units are the
emissions permits issued under the European Union Emissions Trading Scheme. For
the moment, these latter units are not accepted for CPRS purposes.
Item 17 inserts section 118-15 into the ITAA
1997. This new section exempts capital gains and capital losses made from a
registered emissions unit from the capital gains tax provisions of this Act.
However, this does not mean that income and losses from this source are not
assessed at all (see Item 19 following).
Item 19 of this
Schedule inserts new Part 3-50 into the ITAA 1997. Generally, this Part
sets out the taxation arrangements for gains or losses arising from the
acquisition and disposal of registered emissions units.
As noted above new section
420-10 defines what a registered emission unit is for taxation purposes.
New section 420-15 allows the deduction of expenditure incurred in becoming a holder of registered
emissions units, except where:
- they were provided free of charge to the holder under the
Emissions Intensive Trade Exposed assistance program or assistance to the coal
fired power generators (new subsection 420-15(3))
- provided as a result of reforestation activities (new
subsection 420-15(4)
- provided as a result of the destruction of synthetic greenhouse
gases (new subsection 420-15(5)), or
- if the sale proceeds of that unit would not be assessable for
taxation purposes (new subsection 420-15(6)).
The expenses incurred
in ceasing to hold a registered emission unit are also deductible under new section 420-42.
New section 420-25 includes the gross amount
received on the disposal of a registered emission unit in a person’s or
entity’s assessable income. As noted earlier, the expenditure incurred in
becoming the holder of these units, as well as disposing them, is tax
deductible.
The increase and decrease in the value of registered
emissions units held over an income year, is also included in a person’s or
entity’s taxable income under new section 420-45.
This approach is unusual.
Usually, a person or entity would have either the gains or losses arising from
the disposal of an asset assessed only when that asset was sold. The proposed
measure in this section would include the unrealised gains or losses of
registered emissions units held over an income year in the entity’s assessable
income. The unrealised gains would be assessable, but not representative of a
real increase in the entity’s income for that period. This may lead to the
entity paying tax on assessed income they have, in fact, not yet realised.
Concluding
comments
One of the key foundations of any emissions trading scheme
is the accurate collection and dissemination of information on emissions and
liability for those emissions. Without this information liability entities, and
the regulators, cannot accurately administer such schemes. The proposed changes
in the CPRS Consequentials Bill require the collection and dissemination of
this information. If the CPRS scheme is to commence the amendments in this Bill
are essential to its successful operation.
Further, this Bill sets out the taxation treatment of gains
and losses arising from the acquisition, holding and disposal of registered
emissions units. Again, these are vital legislative provisions and must proceed
through Parliament if the main CPRS Bill also passes through Parliament.
Leslie Nielson
9 March 2010
Bills Digest Service
Parliamentary Library
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