The ATO has issued Taxpayer Alert TA 2012/6 entitled "Deduction generation from purported purchase of offshore 'emission units' that do not exist at the time of the arrangement".
The Taxpayer Alert describes an arrangement where participants that are carrying on a business, contract with an offshore entity to purportedly purchase offshore "emission units" generated through offshore carbon reduction activities, and acquire a licence to use a logo owned by the offshore entity. Participants may also acquire a put option from the offshore entity which if exercised requires the offshore entity to purportedly purchase the number of offshore "emission units" contracted for by the participant for approximately the same amount as the balance payable by the participant.
Participants are only obliged to pay a part of the purchase price upon entering the arrangement. Participants may not be obliged to pay the balance. If a participant is obliged to pay the balance, the participant may exercise the put option. This makes the financing arrangements effectively non-recourse.
The arrangement purports to allow participants to deduct the entire purchase price of the offshore 'emission units' in the income year that they enter the arrangement.
Participants are not necessarily liable entities under the Clean Energy Act 2011, and may not have a legal obligation under that legislation in respect of their carbon emissions. The number of the offshore 'emission units' contracted for under the arrangement is not necessarily related to participants' carbon emissions.
It is unclear whether any carbon reduction activities that may generate the offshore 'emission units' have commenced, or will ever commence. It is also unclear whether the offshore 'emission units' contracted for can be registered in Australia, or used to offset participants' carbon emissions.
The ATO sayst that it is currently reviewing these arrangements but on their face they exhibit features characteristic of a tax avoidance scheme.