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Tax Liabilities and Timing Concerns From the Carbon Pollution Reduction Scheme

Publication date: 16 Jul 08 | Source: THE TAX INSTITUTE

Australia’s premier professional tax body, the Taxation Institute of Australia, today called for greater clarity on penalties and focus on timing issues that could create unfunded tax liabilities based on the Pollution Reduction Scheme Green Paper.

The Taxation Institute commends the Government for ensuring that the design of the proposed Carbon Pollution Reduction Scheme (Scheme) will reflect the tax impact of the transactions contemplated by the Scheme.

But it called for early legislative amendments to provide certainty for taxpayers.

Taxation Institute President, Sue Williamson, said the Taxation Institute is pleased the Government has listened to its recommendations to ensure that the tax system that supports the Scheme is compliance efficient by adopting our recommended approach for the taxation of Carbon Pollution Permits and the application of a flow-through GST strategy.

“It is great to begin to see some clarity in the thought process behind the taxation implications of the Scheme at a high level" said Ms Williamson. "However, we now need to start looking at the next level of detail.”

The Taxation Institute’s main concerns are:

  • Clarity about the penalty regime. It has clearly been stated that penalties will not be deductible. However, the scope of this position is unclear given the Scheme is going to include a “make-up” obligation where you have to do something like buy additional Carbon Pollution Permits to make up any shortfall.
  • The taxation of permits on a trading stock basis is a sound and efficient methodology. However, it still needs further development. For example, under this model the upfront taxation of the issue of free Carbon Pollution Permits that do not expire in the year of receipt will give rise to serious timing issues that could create unfunded tax liabilities. We need clarity as to whether Carbon Pollution Permits on hand at the end of a tax year will be valued on an historic, market valuation or other method of choice; and
  • Clarity about early abatement offsets. This is a major issue as industry starts to prepare itself for the new regime.

“Whilst the Green Paper is a crucial step forward in formulating a model to reduce of the impact of climate change on Australia, the Government also needs to be mindful that many tax issues already currently exist for businesses that have implemented their own carbon abatement strategies,” said Ms Williamson.

The Taxation Institute recommends that the Government makes early legislative amendment to maximise the certainty for taxpayers who have already implemented their carbon abatement strategies.

“It’s great to see that the potential tax implications of Australia’s climate change policy options are now on the table for full and frank discussion – this is crucial to the planning, development and implementation an effective climate change policy and the Taxation Institute welcomes the opportunity to make comments in going forward.”

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About the Taxation Institute of Australia: The Taxation Institute is Australia’s largest and most diverse body of tax professionals working together to improve the tax system and the delivery of tax services through education, sharing of information and consultation.

Media Contacts:

Sue Williamson, President - Taxation Institute of Australia on 0411 646 783

Peter Laidlaw, Lighthouse Communications Group on 0419 210 306