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Carbon Trading may mean more than $14 billion* tax bill for Australian businesses

Publication date: 22 Apr 08 | Source: THE TAX INSTITUTE

Australia’s premier professional tax body, the Taxation Institute of Australia, today warned that the proposed carbon trading scheme could reap more than $14 billion* in businesses tax unless the Australian Government took immediate steps to clarify the tax effects of the proposed carbon trading scheme.

Taxation Institute of Australia President, Sue Williamson, said the potential tax windfall would effectively translate into a seven per cent increase in today’s 30 per cent company tax rate if the Government did not commit in its upcoming budget to outlining the compensation measures needed to support the carbon trading plan.

“While we commend the Government’s commitment to reducing carbon emissions, it is important the tax treatment of carbon trading is given immediate attention and agreed well before the final model for an Emissions Trading Scheme (ETS) is established,” Ms Williamson said.

“To date we have not seen any evidence of the tax implications of an ETS being fully considered, yet we know that many tax issues currently exist for businesses that have already implemented their own carbon abatement strategies.

“The Government must ensure that its climate change efforts are not undone by hastily introducing an ETS without giving full consideration to the tax regime that will support it.

“Otherwise we could see consumers wearing unnecessary additional costs for goods and services which will ultimately generate a significant inflationary spike.”

Ms Williamson said the Taxation Institute also hoped that the Government’s upcoming budget would:

  • clarify the tax position of existing voluntary abatement strategies;
  • ensure tax laws are changed to encourage the development of alternative energy sources; and,
  • immediately consult with taxation experts, such as the Taxation Institute’s Climate Change committee, in the development of the ETS.

Ms Williamson said the Taxation Institute’s concerns regarding the tax impact of an ETS have also been raised in its response to the Garnaut discussion paper on ETS, which was submitted today.

Recommendations made by the Institute in its submission to the Garnaut discussion paper include:

  • Treating permits treated as an expense incurred in earning an income or carrying on a business, as opposed to a capital expense.
  • Modifying the “CGT asset” definition should to exclude permits, so that no CGT applies if any gain is made.
  • Ensuring the same tax treatment of permits, regardless of whether they are acquired via auction from the Independent Carbon Bank (ICB) or from another participant of the ETS;
  • If a permit is sold for a loss, treating that loss as an allowable deduction.
  • Ensuring the same tax treatment in Australia for the purchase, acquittal or sale of permits from overseas;
  • Making any interest costs associated with borrowing to acquire permits an allowable deduction;
  • The Government needs to clarify how GST will apply to the carbon trading scheme. • Ensuring State and Territory taxes do not apply to the trading of permits;
  • Introducing legislative measures to enable the costs of permits to be passed on to the consumer where long term contracts are in place.



* = The $14 billion is based on the assumption that permits are required by all companies operating in the Transport and Stationary Energy sectors. “Stationary energy” is defined as emissions from fuel consumption for energy generation, fuels consumed in the manufacturing, construction and commercial sectors and other sources like domestic heating. Transport is the emissions from direct combustion of fuels by road, rail, domestic air and shipping.

For further comment regarding this media or to arrange an interview please contact:

Peter Laidlaw T: (02) 9692 8811 or M: 0419 210 306


Chris Newlan T: (02) 9692 8811 or M: 0407 881 139