Bills Digest no. 122 2009–10
Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010
Date introduced: 2 February 2010
House: House
of Representatives
Portfolio: Climate Change and Water
Commencement: Generally, at the same time as section 3 of the
Carbon Pollution Reduction Scheme Act 2010 (CPRS
Act).[1] This
particular section commences on the 28th day after the CPRS Act
receives Royal Assent. However, if the related Acts have not
themselves first received Royal Assent by the 28th day, the CPRS
Act does not commence at all. These related Acts are:
- Australian Climate Change Regulatory Authority Act
2010
- Carbon Pollution Reduction Scheme (Charges – Customs)
Act 2010
- Carbon Pollution Reduction Scheme (Charges-Excise) Act
2010
- Carbon Pollution Reduction Scheme (Charges-General) Act
2010, and
- Carbon Pollution Reduction Scheme (Consequential
Amendments) Act 2010 (this Bill).
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
This Act amends various existing
Commonwealth legislation as a consequence of the passing of the
main legislation implementing the Government’s Carbon
Pollution Reduction Scheme referred to above as the CPRS Act. This
latter Act is currently before Parliament. The following
legislation and regulations are affected by the CPRS Consequential
Amendments Bill:
- Anti-Money Laundering and Counter Terrorism Financing Act
2006
- Australian Securities and Investments Commission Act
2001
- Corporations Act 2001
- Financial Management and Accountability Regulations 2007
- National Greenhouse and Energy Reporting Act 2007
- National Greenhouse and energy Reporting Act 2007
- Ozone Protection and Synthetic Greenhouse Gas Management
Act 1989
- Renewable Energy (Electricity) Act 2000
- A New Tax System (Goods and Services Tax) Act
1999
- Income Tax Assessment Act 1936
- Income Tax Assessment Act 1997
- Income Tax (Transitional Provisions) Act 1997,
and
- Taxation Administration Act 1953.
Back to top
The
brief history of the passage of the Carbon Pollution Reduction
Scheme Bills to date
This is the third time this form of Bill, as part of the
eleven-Bill Carbon Pollution Reduction Scheme (CPRS) legislative
package, has been introduced into Parliament.
The original Bill, the Carbon
Pollution Reduction Scheme (Consequential Amendments) Bill 2009,
along with nine other CPRS Bills, was first introduced into
Parliament on 14 May 2009. On 28 May, an eleventh Bill was
introduced which completed the package. All the CPRS Bills
were passed by the House of Representatives on 4 June
2009—with government amendments made to some of the
Bills. On 13 August 2009, the Senate voted down all of the
Bills at second reading on 13 August 2009.
Following this, the Carbon
Pollution Reduction Scheme (Consequential Amendments) Bill 2009
[No. 2], along with the other Bills in the CPRS package, were
re-introduced into Parliament on 22 October 2009.[2] They were passed unamended by the
House of Representatives on 17 November, thus satisfying the 3
month ‘waiting period’ required under the double
dissolution provisions of the Constitution.[3] This package of Bills was
introduced into the Senate on 17 November 2009. Following much
negotiation, on 24 November the Government released a number of
amendments to a number of the Bills, including the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2009 [No. 2], and
these were subsequently adopted by the Senate Committee of the
Whole. However, following the Liberal party leadership spill on 1
December, the new leader of the Coalition, Tony Abbott, stated that
he would seek to have Senate consideration of CPRS Bills delayed
until Parliament reconvened in 2010, or in the absence of a delay,
vote against the Bills at that time. With no delay forthcoming, on
2 December 2009, the Senate voted down the CPRS Bills for a second
time. This provided the Government with a trigger to call for
a double dissolution election.
The CPRS Bills, including the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010[4], were again reintroduced into
Parliament on 2 February 2010. They passed the House of
Representatives on 11 February and subsequently debate was
adjourned in the Senate on 24 February. This Bill incorporates the
amendments that were made in the Senate in November and December
2009 to the Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2009 [No. 2] prior it being voted down. Overall,
however, the content of the current Bill to which this particular
digest relates, now titled the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010, is very similar to both the
first and second Bills. As such, this Digest is largely unchanged
from the Digest
produced in October 2009 for the second Bill.
For commentary on recent developments regarding the proposed
CPRS, see relevant sections in the Digest on the Carbon Pollution
Reduction Scheme Bill 2010.
The proposed measures are based on the above mentioned
Government White Paper entitled ‘Carbon Pollution Reduction
Scheme: Australia’s Low Pollution Future’ released by
the Government on 15 December 2008. A link to that document is
here. After the Senate negated the second Bill
it announced that the CPRS legislation would be reintroduced into
Parliament in the first sitting period for 2010.[5]
The Senate Standing Committee on Economics completed its inquiry
and report on the Exposure Draft of the Carbon Pollution Reduction
Scheme Bill 2009 and related Bills, one of which is the CPRS
Consequentials Amendments Bill on 16 April 2009. Details of the
inquiry are at
http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/info.htm.
The exposure draft legislation for the CPRS, one of which is the
CPRS Consequentials Amendments Bill was also considered under
broader terms of reference by the Senate Select Committee on
Climate Policy, which reported on 15 June 2009. Details of this
inquiry are at http://www.aph.gov.au/SENATE/committee/climate_ctte/index.htm.
The Senate Select Committee
on Fuel and Energy’s terms of reference also include inquiry
into the impact of an emissions trading scheme on the fuel and
energy industry. The Committee released an interim report on 7 May,
before its final report due by 30 March 2010. Details of the
inquiry are at http://www.aph.gov.au/SENATE/committee/fuelenergy_ctte/index.htm.
Please refer to the Library’s Bills Digest on the Carbon
Pollution Reduction Scheme Bill 2009 [No. 2] and the Library’s Bills Digest on the Carbon Pollution
Reduction Scheme Bill 2010.
The pros and cons of the proposed Carbon Pollution Reduction
Scheme are extensively discussed in the Library’s Bills
Digest on the Carbon Pollution Reduction Scheme Bill 2009 [No. 2]
and the Library’s Bills Digest on the Carbon Pollution
Reduction Scheme Bill 2010.
Likewise, the position of the various political groups, as of
the date of publication, are discussed in the Library’s Bills
Digest on the Carbon Pollution Reduction Scheme Bill 2009 [No. 2]
and the Library’s Bills Digest on the Carbon Pollution
Reduction Scheme Bill 2010.
Back to top
The financial impact of the proposed Carbon Pollution Reduction
Scheme is outlined in the Library’s Bills Digest on the
Carbon Pollution Reduction Scheme Bill 2010.
Item 1A inserts a new definition of
‘eligible emissions unit’ into the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF
Act). An eligible emissions unit is defined in clause
5 of the Carbon Pollution Reduction Scheme Bill 2010 (CPRS
Bill) as an Australian emissions unit (AEU) or an eligible
international emissions unit. These are emission units that are
able to be surrendered by liable entities under the proposed Carbon
Pollution Reduction Scheme (CPRS) to acquit their responsibilities
under that scheme.
Briefly, an AEU is an emission unit issued by the proposed
Australian Climate Change Regulatory Authority (the Authority).
Eligible international emissions unit are certain emissions units
arising from the operation of the ‘flexible mechanisms’
(such as the clean development mechanism) set up under the Kyoto
Protocol to the United Nations Framework Convention on Climate
Change. They may include other non-Australian sourced emissions
units at a later date as the CPRS develops. The Library’s
Digest on the Carbon Pollution Reduction Scheme Bill 2009 [No. 2]
contains further details on the Kyoto Protocol, flexible mechanisms
and the above-mentioned Convention.
Item 1C will amend the AML/CTF Act so that an
agent of a person acting as an agent of another person acquiring or
disposing of an eligible emissions unit has to verify the identity
of their principal.
Item 1 amends the Australian Securities and
Investment Commission Act 2001 so that both and AEU and an
eligible international emissions unit are financial products for
the purposes of this Act. Amendments in Item
2 mean that providing a service in respect of these units
is not the provision of a financial service for
the purposes of this Act.
Item 6 amends the Corporations Act
2001 so that both an AEU and an eligible international
emissions unit are financial products for the purposes of this
particular Act.
Items 13 to 65 amend the
National Greenhouse and Energy Reporting Act 2007 (NGER
Act) so that previous references to the Greenhouse and Energy Data
Officer (Officer) in this Act now refer to the Australian Climate
Change Regulatory Authority (the Authority). All the functions
exercised by this Officer would now be exercised by the
Authority.
Items 68 to 83 amend the
Renewable Energy (Electricity) Act 2000 so that the
functions of the Renewable Energy Regulator under this Act would be
exercised by the Authority.
Items 87 to 97 of this
Schedule contain provisions that allow the transition of functions
in relation to the CPRS, reporting of greenhouse gas emissions
under the NGER Act and renewable energy to the Authority. Note in
particular that under item 93, definitions of
‘Office of the Renewable Energy Regulator’,
‘protected document’, ‘protected
information’ and ‘Regulator’ will continue to
apply despite the repeal of the those provisions in the
Renewable Energy (Electricity) Act 2000. Item
96 also provides that if before the commencement of this
item, if the emission unit accounts held by the Commonwealth with
the Authority were described by specific terms and designated by
particular authorities, they will have be considered effective
under the new CPRS Act.
Items 98 to 194 amend the NGER
Act.
Item 101 inserts new subsection
3(2) so that one of the formal objectives of the NGER Act
is to underpin the CPRS Act by imposing various registration,
reporting and record-keeping requirement.
Item 107 adds new subsection 2
to section 5 of the NGER Act. The effect of this amendment is to
ensure that the reporting requirements of the NGER Act apply to the
exclusion of laws and regulations of a state or territory, except
to local governing bodies or certain state and territory statutory
authorities.
Item 109 repeals existing section 6 of the NGER
Act and inserts new sections 6,
6A, 6B, and 6C
into that Act. These provisions define where this Act applies. In
addition to the existing provisions new section 6A
ensures that the NGER Act applies in respective of
Australia’s sovereign rights in its exclusive economic zone
and continental shelf. Consistent with Australia’s
obligations under the Law of the sea, new Section 6C contains some
customary restrictions about the application of the NGER Act to
foreign ships in Australia’s territorial sea, exclusive
economic zone and continental shelf.
New section 6B ensures that the NGER Act will
also apply to the Joint Petroleum Development Area, between East
Timor and Northern Australia.
Items 110 to 145 amend section
7 NGER Act so that the various definitions of terms used in the
amended Act are updated.
Item 146 inserts new sections
7A, 7B, 7C and
7D into the NGER Act. These amendments are vital
for the operation of the CPRS Act. Briefly, these amendments define
the following terms for CPRS Act purposes:
- new section 7A – definition of a
greenhouse gas
- new section 7B – definition of a
synthetic greenhouse gas
- new section 7C – definition of potential
greenhouse gas emissions embodied in an amount of eligible upstream
fuel,
- the term eligible upstream fuel is defined in Clause 5 of the
CPRS Bill to include a wide range of solid, liquid and gas fuels
that may be supplied from either a producer (such as a coal mine)
or importer (such as an oil company) through to the consumer,
and
- new section 7D carbon dioxide equivalence of
potential greenhouse gas emissions embodied in an amount of
eligible upstream fuel.
These definitions are vital for the operation of
Part 3 and Part 11 of the CPRS Act.
The CPRS operates on the basis of individual facilities.
Item 151 amends existing subsection 9(1) of the
NGER Act so that the definition of a facility contained in this
subsection applies to the CPRS Act.
In the first instance liability under the CPRS rests on the
person or entity that has operational control over a facility (this
liability may pass to other parties under the CPRS –
particularly the entity with financial control over a facility).
Item 172 inserts new sections
11A, 11B and 11C into
the NGER Act to clarify which entity has operational control over a
facility if two or more parties satisfy the criteria in existing
section 11 of this Act for determining who controls a facility. It
is important to note that new section 11A defines
who has ‘operational control’ over an emitting facility
for both the purposes of the NGER and CPRS Acts.
New section 11C of the NGER Act deals with the
operational control of an emitting facility held by a trust with
multiple trustees. Briefly, all trustees jointly nominate one of
their number to be in operational control of an emitting facility
for CPRS and NGER
Act purposes. A foreign person, who may be a trustee of a trust in
operational control of an emitting facility, cannot be so
nominated, if there is also a non-foreign trustee. Item
118 of this Bill inserts the definition of foreign person
into section 7 of the NGER Act. Briefly a foreign person for NGER
Act purposes is a non resident, a body corporate incorporated
outside Australia, a body politic of a foreign country or a trust
where the majority of the trustees are covered by these
definitions.
Item 173E inserts new sections
15A, 15B and 15C into
the NGER Act. These sections require various persons or entities to
register under this Act. These entities or persons are:
- a person or entity who was, or is, liable under the CPRS for
the current eligible financial year, and/or
- a person or entity who, in the current eligible financial year,
supplied an amount of eligible upstream fuel or synthetic
greenhouse gas to another person, and that person quoted an
‘obligation transfer number’ (OTN) to the
supplier.
An ‘eligible financial year’ is defined in
Item 5 of the CPRS Bill as a financial year
beginning on 1 July 2011 or later financial year. It follows that
the ‘current eligible financial year’ is simply a
current financial year that starts after this date.
An OTN is defined in Clause 5 of the CPRS Bill
as a number issued under either Clause
44 or 45 of that Bill. Briefly,
these numbers allow a suppliers’ liability for greenhouse gas
emissions embedded in eligible upstream fuels or synthetic
greenhouse gases to be transferred to the recipient of these
materials.
Item 181 inserts new sections
22A to 22F in the NGER Act that require
liable entities, OTN holders, fuel suppliers and holders of
liability transfer certificates to report to the Authority and to
keep records of such reports. Broadly, these reports are to be
provided in the specified form and contain information that will
allow the Authority to determine the emissions for which the entity
or person is responsible under the CPRS scheme.
Maximum penalties for contravention of these requirements are
2000 penalty units ($220,000) for individuals and 10 000 penalty
units ($1.1 million) for other entities.
Item 184 requires the Authority to publish
information sourced from these reports on its website, especially
the provisional emissions number applying to a particular liable
entity.
Clause 5 of the CPRS Bill defines a provisional
emission number as:
- having the meaning given by Part 3 of
that Bill, and
- the meaning given by new sections 11B and
11C of the NGER Act.
Briefly, the provisional emissions number in Part
3 of the CPRS Bill is the amount of greenhouse gases
emitted by a liable entity. New subsections 11B(7)
and 11C(7) of the NGER Act define this number in
terms of a formula that expresses this number in terms of emissions
per liable person for those emissions.
This information has to be published by 28 February following
the end of the relevant eligible financial year.
An efficient emissions trading market runs on accurate and
timely information. This particular provision is a significant
contribution to the provision of that information.
Item 189 inserts new section
54A into the NGER Act. This new section allows the
Authority to declare an activity or a series of activities
(including ancillary activities) to be an emitting facility for
CPRS purposes. This may be done at the Authority’s own
initiative, or on application by a non-group entity.
Item 129 inserts a definition of non-group
entity into section 7 of the NGER Act which states that a non-group
entity is a person who is not a member of a controlling
corporation’s group. This suggests that a separate individual
(such as a member of the public or a corporation employee) may
approach the Authority to apply for some activity or series of
activities that were not previously classed as an emitting facility
to be so classed.
Comment – non-group entity
It may be appropriate to ensure that private individuals or
employees of a controlling corporation that apply to the Authority
for an activity or group of activities to be classed as an emitting
facility for CPRS and NGER be protected against possible
recriminations.
Item 194 inserts new sections
74AA-74C into the NGER Act to strengthen the compliance
aspects for the NGER Act.
For example, under new section 74AA, a person
who is a liable entity for a particular financial year, is required
to provide a report under new section 22A, and whose gross
emissions exceed the relevant level specified in regulations, will
be subject to a mandatory audit process. A failure to comply with
the audit requirements carries a civil penalty, in the case of a
corporation, of up to 1,000 penalty units ($110 000).
New section 74B enables the Authority to
require a non-group entity (individual) who they suspect of not
complying with that Act to appoint a registered greenhouse and
energy auditor. Further, this section gives the Authority the power
to require that an audit of the non-group entity’s operations
be carried out by that appointed auditor.
New section 74C of the NGER Act allows the
Authority to appoint a greenhouse gas and energy auditor without
the need to hold a suspicion of non-compliance.
The synthetic greenhouse gases are hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).
These gases have a much greater global warming potential per tonne
than carbon dioxide (CO2) (ranging from 1000 to
23 000 times more potent over a 100–year timeframe).
Emissions of many of these gases have been rapidly increasing, as
they are used as substitutes for ozone–depleting substances
controlled under the Montreal Protocol. They are used or produced
in numerous industrial processes, mainly as:
- refrigerants for refrigeration and air conditioning
equipment
- foam–blowing agents for some thermal insulation
applications
- propellants in some aerosols
- extinguishing agents in some systems, and
- insulation gas in electrical switchgear.[6]
Item 199 inserts a definition of sulphur
hexafluoride into section 7 of the Ozone Protection and
Synthetic Greenhouse Gas Management Act 1989 (Ozone Act). This
gas is one of the six greenhouse gases controlled by the Kyoto
Protocol and is covered by the CPRS scheme. Effectively this gas is
now included in the controls imposed by the Ozone Act.
Item 203 inserts new section
9A into the Ozone Act which exempts synthetic greenhouse
gases that are part of another manufactured product, from
regulation under that Act. Thus where these gases are part of
another manufactured product they are not covered under the CPRS
scheme.
Item 217 inserts new section
46A into the Ozone Act that requires manufacturers,
importers and exporters of synthetic greenhouse gases to give a
report to the relevant Minister within 15 days of the end of the
relevant quarter in which these action took place, if:
- such actions were not in circumstances covered by regulations
made under paragraph 13(1A)(b) of the Ozone Act, and
- in the case of an importer the above criteria did not apply and
the import was not covered by paragraph 68(1)(d) of the Customs
Act 1901.
There is no requirement for the Minister to make these reports
available to the Parliament. However, a copy must be given to the
proposed Australian Climate Change Regulatory
Authority.
Paragraph 13(1A)(b) of the Ozone Act allows the manufacture,
import and/or export of synthetic greenhouse gases, where it takes
places in these circumstances, to be prescribed in regulations.
Paragraph 68(1)(d) covers goods that are accompanied or
unaccompanied
personal or household effects of a passenger, or a member of a
crew, of a
ship or
aircraft.
Thus, amounts of synthetic greenhouse gases covered by the Ozone
Act imported as personal luggage are covered by the provisions of
the Ozone Act. Given the very high unit value of some of these
gases it may have been possible to profitably import an amount of
these gases as personal luggage and not had these imports covered
by this Act, or regulated by the CPRS Scheme, but for this
particular provision.
Back to top
Item 1 of Schedule 2 inserts
new subsection 9-10(3B) into the
A New Tax (Goods and Services Tax) Act 1999 (GST Act). The
effect of this amendment is that the supply of an eligible
emissions unit of a Kyoto Unit is a supply of a personal property
right under tax legislation and therefore subject to the Goods and
Services Tax (GST).
Briefly, liability for GST arises where a registered business
supplies goods or services to its customers. The GST is imposed at
the rate of 10 per cent. Typically, it is included in the price
paid by the recipient of the goods and services. The supplier must
account for the amount of GST to the Australian Taxation
Office.
If the recipient of goods or services is a registered business
entity, it will normally be able to claim a credit for the amount
of GST it has paid, provided it holds a tax invoice. This credit
— called an input tax credit — is offset against any
GST on goods or services that the recipient supplies to its own
customers.[7]
The application of GST to AEUs and Kyoto units is controversial.
The following comment from the Taxation Institute explains some of
the major concerns:
The GST is proposed to be applied to trading in
emissions units. This approach is based upon the mistaken belief
that an emissions unit is akin to any other business input (eg a
piece of steel) and that consistency of treatment with other inputs
is more important than any compliance costs imposed on consumers.
The Government also believes that the reduction in compliance costs
to the community in respect of the trading of emission permits
“. . . would undermine the objective of meeting
Australia’s emissions reductions in a cost-effective way by
providing a preferential GST treatment for emissions units relative
to pursuing other ways of reducing emissions”. However,
loading the cost of emissions permits with inefficient and
distortionary compliance costs only reduces the efficiency of the
Carbon Pollution Reduction Scheme (CPRS). It
should be the market price of the units that encourages other ways
of reducing emissions not compliance costs.
The problem is that an emissions unit will not
be traded like a piece of steel, where an order is sent to a
supplier, who some days later, delivers the steel. Rather, due to
the design of the scheme which discourages holding of emission
units, the trades will occur in high volumes (with in excess of 460
million permits available to be traded), electronically, in split
seconds by traders in a market not dissimilar to the stock exchange
or the futures market. Currently, those finance trading markets do
not apply GST to dealings in marketable securities such as shares
and options.[8]
Clause 5 of the CPRS Bill defines a Kyoto unit
to mean:
- an assigned amount unit (AAUs)
- a certified emissions reduction unit (CER)
- and emissions reduction unit (ERU)
- a removal unit (RU), or
- a prescribed unit issued in accordance with the Kyoto
rules.
The first four of these units arise under the
current Kyoto Protocol. AAUs will not be accepted for CPRS
purposes. An unlimited number of CERs will be accepted for CPRS
purposes. However, some conditions apply to the acceptance of ERUs
and RUs for CPRS purposes. The last dot point refers to any future
type of unit issued under the Kyoto Protocol, or its successor.
Items 3 and 4 insert a
reference to the definition of an eligible emission unit and a
Kyoto Unit in the CPRS Bill, into section 195-1 of the GST Act.
Items 2 and 6 ensures that an
eligible emission unit and a Kyoto unit are not ‘real
property’ for GST purposes.
Item 10 inserts new
section 70-12 into the Income Tax Assessment
Act 1997 (ITAA 1997). The effect of this new section is that a
registered emissions unit is not trading stock for taxation
purposes. This does not prevent these units from being traded.
A registered emissions unit is defined in
new section 420-10 (see
Item 19 of Schedule 2) as either
an eligible emissions unit or a Kyoto Unit for CPRS purposes that
is entered in the relevant register maintained by the
Authority.
Section 70-10, ITAA 1997 defines trading stock as anything
produced, manufactured or acquired that is held for purposes of
manufacture, sale or exchange in the ordinary course of a business. As noted above, this category does
not include the holding of a registered emissions unit. The special
rules applying to the taxation treatment of trading stock in the
income tax legislation do not apply to these units. The following
noted amendments however do establish a taxation regime applying to
registered emissions units.
Item 15 inserts new
section 104-205 into the ITAA 1997. This section defines a
new CGT event K1 in relation to an international emissions unit and
defines the amount of capital gain or loss in relation to that
unit.
Item 45 inserts the definition of the term
international emissions unit into sub-section 995(1) ITAA 1997.
Briefly, this term is defined as:
- (a) a Kyoto unit (see above discussion), or
- (b) a non-Kyoto international emissions unit.
Clause 5 of the Carbon Pollution
Reduction Scheme Bill 2010 defines this latter term to be either
(a) a prescribed unit issued in accordance with an international
agreement (other than the Kyoto Protocol) or (b) a prescribed unit
issued outside Australia under a law of a foreign country. An
example of the latter units are the emissions permits issued under
the European Union Emissions Trading Scheme. For the moment, these
latter units are not accepted for CPRS purposes.
Item 17 inserts section 118-15
into the ITAA 1997. This new section exempts capital gains and
capital losses made from a registered emissions unit from the
capital gains tax provisions of this Act. However, this does not
mean that income and losses from this source are not assessed at
all (see Item 19 following).
Item 19 of this Schedule inserts
new Part 3-50 into the ITAA 1997. Generally, this
Part sets out the taxation arrangements for gains or losses arising
from the acquisition and disposal of registered emissions
units.
As noted above new section
420-10 defines what a registered emission unit is for
taxation purposes.
New section 420-15 allows the
deduction of expenditure incurred in becoming a holder of
registered emissions units, except where:
- they were provided free of charge to the holder under the
Emissions Intensive Trade Exposed assistance program or assistance
to the coal fired power generators (new subsection
420-15(3))
- provided as a result of reforestation activities (new
subsection 420-15(4)
- provided as a result of the destruction of synthetic greenhouse
gases (new subsection 420-15(5)), or
- if the sale proceeds of that unit would not be assessable for
taxation purposes (new subsection
420-15(6)).
The expenses incurred in ceasing to hold a
registered emission unit are also deductible under
new section 420-42.
New section 420-25 includes
the gross amount received on the disposal of a registered emission
unit in a person’s or entity’s assessable income. As
noted earlier, the expenditure incurred in becoming the holder of
these units, as well as disposing them, is tax deductible.
The increase and decrease in the value of registered emissions
units held over an income year, is also included in a
person’s or entity’s taxable income under new
section 420-45.
This approach is unusual. Usually, a person or entity would have
either the gains or losses arising from the disposal of an asset
assessed only when that asset was sold. The proposed measure in
this section would include the unrealised gains or losses of
registered emissions units held over an income year in the
entity’s assessable income. The unrealised gains would be
assessable, but not representative of a real increase in the
entity’s income for that period. This may lead to the entity
paying tax on assessed income they have, in fact, not yet
realised.
Concluding comments
One of the key foundations of any emissions trading scheme is
the accurate collection and dissemination of information on
emissions and liability for those emissions. Without this
information liability entities, and the regulators, cannot
accurately administer such schemes. The proposed changes in the
CPRS Consequentials Bill require the collection and dissemination
of this information. If the CPRS scheme is to commence the
amendments in this Bill are essential to its successful
operation.
Further, this Bill sets out the taxation treatment of gains and
losses arising from the acquisition, holding and disposal of
registered emissions units. Again, these are vital legislative
provisions and must proceed through Parliament if the main CPRS
Bill also passes through Parliament.
Back to top
Leslie Nielson
9 March 2010
Bills Digest Service
Parliamentary Library
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2495.
Back to top