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17 Jul 08 Green paper released

On 16 July 2008, the Government released a Green Paper containing proposals for a new plan (a Carbon Pollution Reduction Scheme) to tackle climate change by reducing carbon pollution. The Minister for Climate Change and Water, Senator Penny Wong, said the Green Paper sets out options and identifies the Government’s disposition and preferred positions on emissions trading and the support proposed to help households and businesses adjust to this economic transformation.

“At the heart of the Carbon Pollution Reduction Scheme is emissions trading, in which the Government sets a limit on how much carbon pollution industry can produce, and then the Government sells permits up to that limit, creating an incentive to look for cleaner energy options. Companies can buy and sell permits from each other depending on how much they value them, thereby enabling the market to find the most efficient ways to reduce carbon pollution,” Senator Wong said.

In relation to taxation and accounting matters, the Summary Report of the Green Paper states as follows:

"11.1 Discrete provisions of the income tax law would be developed. Such provisions would provide generally the same tax treatment to permits purchased by taxpayers who are carrying on a business or other income-earning activity as would occur under existing legislation, but would provide increased certainty and reduced complexity. The provisions would allow a deduction for expenditure incurred on the purchase of a permit and include any proceeds from the sale of a permit in assessable income.

11.2 The cost of acquiring a permit would be deductible at the time the permit is acquired. If the permit is banked, the effect of the deduction would be deferred until the time the permit is surrendered or sold. Any proceeds received on the sale of a permit would be treated as assessable income.

11.3 The effect of deferring a deduction for the purchase of a permit would be achieved through a rolling balance method, under which the value of permits held at the beginning and end of the income year would be taken into account.

11.4 The value of free permits would be included in the taxpayer’s assessable income in the year the permits are received.

11.5 The value of a cash grant given to a liable entity as assistance under the scheme would be included in their assessable income in the income year it is received.

11.6 Scheme transactions would be treated under the normal GST rules. This would ensure that scheme transactions would receive the same treatment as similar transactions in the broader economy. It would also be consistent with the underlying principles of the GST, including its broad-based nature, minimize compliance costs for entities and avoid complexity in the law. The treatment of permits under the normal rules would generally not lead to embedded GST for registered entities and, from a GST perspective, those entities would be indifferent as to whether permits were auctioned or free."

It is proposed that the above treatment will exclude the operation of the CGT provisions of the ITAA to the acquisition and disposal of permits by taxpayers who are carrying on a business or other income-earning activity. For more detail of the taxation and accounting treatment, see Chapter 11 of the Green Paper.

For a copy of the Green Paper and related documents, go here

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