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16 Dec 088 Government releases CPRS White Paper

In an address to the National Press Club in Canberra on 15 December 2008, the Prime Minister, Kevin Rudd, announced the introduction of a Carbon Pollution Reduction Scheme (CPRS).

Mr Rudd said: "By the end of 2020, we will reduce Australia’s carbon pollution by between 5% and 15% below 2000 levels. 5% below 2000 levels is our minimum, unconditional commitment to reduce emissions by 2020, irrespective of the actions of other nations. 15% below 2000 levels is our commitment to reduce emissions further, if there is a global agreement where all major economies commit to substantially restrain emissions and advanced economies take on comparable reductions to that of Australia."

Details of the tax implications of the CPRS are set out in a factsheet entitled "Taxation Treatment of Emissions Permits". The following is extracted from the factsheet:

Discrete provisions outlining the taxation treatment of emissions permits will be inserted in the income tax law. The provisions will allow a deduction for expenditure incurred on the purchase of a permit and include any proceeds from sale of a permit in assessable income. Expenditure on permits will generally affect taxable income in the year in which the permit is surrendered or sold - this will be done by using a "rolling balance" mechanism to take into account the value of permits held at the beginning and the value of permits held at the end of an income year. In response to feedback from stakeholders, the Government has decided to allow taxpayers to make an election to use either historical cost or market value to value all permits held at the end of an income year. Taxpayers will be able to change valuation methods once during a transitional period of five years from the CPRS’s commencement, after which no further change will be allowed.

The normal GST rules will apply to CPRS transactions, including the input taxed treatment of supplies of financial derivatives. This will ensure that Scheme transactions receive the same treatment as similar transactions in the broader economy. It will also be consistent with the underlying principles of the GST, including its broad based nature, minimise compliance costs for entities and avoid complexities in the law. The application of the normal GST rules will generally not lead to a net GST liability for registered entities and entities will be indifferent as to whether permits are purchased or freely allocated.

The Government will amend the GST law to characterise carbon pollution permits and eligible Kyoto emissions units for GST purposes as personal property rights (and not rights within the meaning of real property in the GST law). This will provide certainty and ensure that the application of the normal GST rules to scheme transactions does not lead to unintended outcomes.

The Government will release exposure draft legislation setting out changes to the tax law at the same time as the CPRS exposure draft legislation is released in early 2009.

The Government's intention is to commence the CPRS on 1 July 2010.

In a media release issued on 15 December 2008, the Taxation Institute said that it is disappointed at some of the tax treatments proposed in the CPRS White Paper. Taxation Institute President, Sue Williamson FTIA, said that the Taxation Institute has concerns that under the current policy proposals there will be an increase in the cost to the community because:

  • unnecessary cash costs and GST which will be imposed on business will be passed on to consumers; and
  • pensioners and low income earners may not receive the full benefit of the proposed compensation due to the interaction of the welfare and tax systems.

Ms Williamson said: "...given that the CPRS is designed to set the cost of carbon which is to be passed on to the consumer, the Taxation Institute believes it is important to ensure that the impact of taxation on the CPRS will be minimised. Of key concern are the latent costs that will be passed on by business to consumers as a result of trapped GST in the estimated $115 billion per annum secondary market.  Businesses will be forced to recoup the trapped GST and high funding costs by higher prices to consumers. Further, in light of the tight commercial environment where borrowing funds is extremely difficult for businesses, the Government has not addressed the additional cash costs associated with the levying of $1.15 billion of GST each year on the purchase of carbon reduction permits.

For a copy of the Taxation Institute's media release, 15 December 2008, go here.

For a copy of the Prime Minister's speech, go here.

For a copy of the CPRS white paper and other information, go here.

For a copy of the taxation factsheet, go here.

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