House of Representatives

Tax Laws Amendment (2004 Measures No. 1) Bill 2004

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 4 - Energy Grants (Credits) Scheme transitional arrangements

Outline of chapter

4.1 Schedule 4 to this bill amends the transitional arrangements of the Energy Grants (Credits) Scheme (EGCS), which deal with the treatment of claims for fuel purchased in the three years preceding the introduction of the scheme. The changes will rectify an anomaly that may have seen an unintended entitlement to concessional treatment created in certain circumstances under the EGCS that did not previously exist in the schemes that it replaces.

Context of amendments

4.2 The EGCS commenced on 1 July 2003, replacing the Diesel Fuel Rebates Scheme (DFRS) and the Diesel and Alternative Fuels Grants Scheme (DAFGS). It provides a credit for the use of diesel and specified alternative fuels in certain on and off-road activities.

4.3 For ease of administration, transitional arrangements were put in place with the introduction of the EGCS so that fuel purchases up to a maximum of three years prior to the introduction of the EGCS could be claimed under it, rather than under the previously existing schemes.

4.4 An unintended consequence of these arrangements has been the possible creation of entitlements under the EGCS that did not exist under the previous schemes.

4.5 For example, the use of diesel to generate electricity in a retail or hospitality business without access to grid power only became an eligible activity under the DFRS on 1 July 2002. However, the operation of the EGCS transitional provisions in the context of this activity may create an entitlement to an off-road credit under the EGCS back to 1 July 2000, an additional two year period prior to its introduction into the DFRS.

4.6 A similar situation exists for the fuels liquefied natural gas and biodiesel, which became specified on-road alternative fuels under the EGCS on 1 July 2003 and 18 September 2003 respectively. There is a significant possibility that the transitional provisions create an entitlement for an on-road credit for the use of these fuels in the three years prior to the commencement of the EGCS, an entitlement that did not exist under the DAFGS.

4.7 Should the ATO, before this legislation receives Royal Assent, pay any claims which would later be rendered ineligible by the passage of these amendments, then the Commissioner may not be able to recoup those payments as overpayments according to usual practice.

4.8 This is because the Commissioner's current powers only extend to recovering payments made as a result of a mistaken assessment which was later amended by the ATO. But in this case, the payments would not have been made as a result of a mistaken assessment, but as a result of a legal entitlement to payment under the EGCS for an activity which was later rendered ineligible by amendments to the transitional provisions.

4.9 However, the amendments in this bill allow the Commissioner to recoup such payments by reducing other entitlements available to the claimant. The amendments identify those entitlements which the Commissioner may reduce, and the manner in which he may reduce them.

Summary of new law

4.10 These amendments rectify an anomaly that exists in Schedule 7 to the Energy Grants (Credits) Scheme (Consequential Amendments) Act 2003 (EGCS(CA) Act) which provides transitional arrangements for fuel purchases that occurred prior to the introduction of the EGCS. The anomaly is the possible creation of entitlements under the EGCS that did not previously exist under the schemes that the EGCS replaces.

4.11 As the amendments rectify an anomaly in the law, they will apply from 1 July 2003, the date when the existing provisions first applied.

Detailed explanation of new law

4.12 This bill inserts a new subitem 1(1A) into Schedule 7 to the EGCS(CA) Act which qualifies the coverage of the EGCS transitional arrangements as described in subitem 1(1). Subitem 1(1A) provides that the following are excluded from the scope of the EGCS transitional arrangements:

·
the on-road alternative fuels liquefied natural gas and biodiesel; and
·
off-road diesel fuel purchased or imported prior to 1 July 2002 for use in generating electricity in a retail or hospitality business without access to grid power.

[Schedule 4, items 1 and 4]

4.13 This bill revises subitem 1(2) of Schedule 7 to the EGCS(CA) Act to take account of the changes introduced by the amended subitem 1(1) and the new subitem 1(1A). [Schedule 4, item 4]

4.14 This bill amends Schedule 7 to the EGCS(CA) Act to make some of the terminology used more consistent with that used in the Energy Grants (Credits) Scheme Act 2003 (EGCS Act). The term "person" is replaced by the term "entity" wherever it occurs in Schedule 7. [Schedule 4, items 2, 5 and 6]

4.15 This bill also amends subitem 1(1) of Schedule 7 to the EGCS(CA) Act to clarify that the transitional arrangements apply for fuels and uses mentioned in that Act as in force on 1 July 2003, including as affected by regulations made under the EGCS Act commencing on that day. This is to ensure that any future additions or extensions to the EGCS do not automatically fall within the scope of the transitional arrangements, which were intended to apply only to entitlements being transitioned to the EGCS from the previously existing schemes. [Schedule 4, item 3]

4.16 This bill provides explicitly that no entitlement to an energy grant arises under Schedule 7 to the EGCS(CA) Act as it was in force before the commencement of the amendments outlined above. [Schedule 4, item 7]

4.17 This bill contains a provision making it clear that if a claim for an energy grant was assessed under the transitional arrangements prior to these amendments, and these amendments have the effect of reducing the claimant's entitlement to a grant, then the Commissioner is not entitled to amend the assessment in order to reduce the entitlement.

4.18 Instead, the Commissioner may reduce any of the claimant's other entitlements to grants and/or benefits under the Product Grants and Benefits Administration Act 2000, until the Commissioner has recouped the total amount of the reduction. [Schedule 4, item 8]

Commencement

4.19 Items 1 to 7 of Schedule 4 commence retrospectively immediately after the commencement of the EGCS(CA) Act containing Schedule 7, and item 8 commences on the date that this bill receives Royal Assent.


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