Explanatory Memorandum(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)
Chapter 4 National Urban Water and Desalination Plan - urban water tax offset
Outline of chapter
4.1 Schedule 4 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to provide a refundable tax offset in relation to certain projects approved under the National Urban Water and Desalination Plan (plan).
Context of amendments
4.2 The Government is committed to working cooperatively with the States and Territories to improve the security of water supplies to Australia's major cities. The Government's Water for the Future plan builds on the National Water Initiative by bringing rural and urban water reforms together.
4.3 The plan is an important component of Water for the Future and will support initiatives that drive investment in diverse water supply options and encourage industry and the community to save and use water more efficiently.
4.4 The aim of the plan is to increase the security of water supplies to Australia's cities. This will be achieved by supporting major desalination, water recycling and stormwater harvesting projects that contribute significantly to improving the security of water supplies to Australia's cities.
4.5 The Minister for Climate Change and Water (Water Minister) is responsible for approving financial assistance under the plan. The plan will be administered by the Department of the Environment, Water, Heritage and the Arts (Water Department).
4.6 Financial assistance under the plan will be determined through a competitive process and is capped at 10 per cent of eligible up-front capital costs up to a maximum of $100 million per project. To ensure the plan focuses on major projects, projects must have eligible capital costs of at least $30 million. Special rules apply to stormwater harvesting projects (see paragraph 4.14).
4.7 Financial assistance will be provided as refundable tax offsets, unless the applicant receiving the assistance is outside the tax system, in which case they will receive a grant.
4.8 Financial assistance for approved projects will be available from the 2009-10 income year. Financial assistance will be provided upon completion of agreed milestones, and projects must be completed by 30 June 2013 in order to receive the agreed assistance in full. Financial assistance will be of a fixed value once it has been approved regardless of any subsequent changes to the capital cost of the project.
4.9 The Water Department issued implementation guidelines on 7 December 2008, which explain the application and approval processes for funding under the plan. The following diagram illustrates the process.
Diagram 4.1 : Funding process
Detailed explanation of new law
Entitlement to the tax offset
4.10 A company is entitled to a refundable tax offset under the plan for an eligible project if the Water Minister has issued a valid certificate for the project. [ Schedule 4, item 10, section 402-755 ]
4.11 Private sector entities, water utilities and governments are eligible to apply for assistance under the plan. As only the private sector falls within the income tax system (and may therefore receive a tax offset), there is no need to include entities other than companies in these provisions. The other entities will be able to apply for grants under the plan.
4.12 The amount of the offset is 10 per cent of eligible up-front capital costs up to a maximum of $100 million. [ Schedule 4, item 10, subsection 402-765(4 )]
4.13 This amount may be paid over several certificates, recognising the attainment of project milestones, and therefore relate to different income years.
Example 4.1 Pinderburge Pty Ltd is building a desalination plant in south-eastern Australia. The project is approved for funding of $50 million under the plan.In 2009-10, Pinderburge did not meet any milestones, so no assistance was paid to the company. In 2010-11, the company achieved two milestones and claimed eligible capital expenditure of $370 million, for which the Water Department issued certificates for tax offsets totalling $37 million. In 2011-12, the final milestone was achieved, and $200 million of eligible capital expenditure was claimed. As only $50 million of funding was approved, the final certificate for a tax offset was limited to the balance of $13 million.
4.14 For stormwater harvesting projects, the amount of the offset is up to 50 per cent of eligible capital costs to a maximum of $20 million. [ Schedule 4, item 10, subsection 402-765(3 )]
4.15 A certificate may be issued by the Water Minister if a project has satisfied the requirements set out in the guidelines. [ Schedule 4, item 10, subsection 402-760(1 )]
4.16 The guidelines will provide details of the steps in the certification process.
4.17 A certificate may be revoked under certain circumstances outlined in the guidelines. [ Schedule 4, item 10, section 402-770 ]
4.18 Where a certificate is revoked, it is taken as if the certificate was never issued. This means that, for the income year which the certificate relates to, the tax return of the company would need to be amended.
4.19 A certificate which has been issued cannot be varied. To vary a certificate, the Water Minister must revoke the existing certificate and issue a new one. [ Schedule 4, item 10, subsection 402-770(7 )]
Administrative Appeals Tribunal Review
4.20 A company may apply to the Administrative Appeals Tribunal (AAT) for review of the Water Minister's decision in relation to:
- their refusal to issue a certificate to a company;
- the amount specified in such a certificate; or
- the revocation of such a certificate.
[ Schedule 4, item 10, section 402-775 ]
4.21 Where a review by the AAT is an option available to a company in relation to the matters specified above, any correspondence from the Water Minister or the Water Department must include information on the company's rights to appeal to the AAT. [ Schedule 4, item 10, subsections 402-760(6 ), 402-765(4 ) and 402-770(4 )]
4.22 The review rights apply only to the process surrounding the issuance and revoking of certificates, and not the application for assistance under the plan.
4.23 The Water Minister must make guidelines in relation to the issuing and revoking of certificates. These guidelines will be registered as a legislative instrument. [ Schedule 4, item 10, subsection 402-780(1 )]
4.24 Subsection 14(2) of the Legislative Instruments Act 2003 prevents legislative instruments from referring to material not contained in the enabling legislation unless the contrary intention is specified in the legislation. This contrary intention, at subsection 402-780(2), is necessary as the guidelines will rely to an extent on material produced by the Water Department in relation to the plan. [ Schedule 4, item 10, subsection 402-780(2 )]
4.25 The guidelines do not have effect until the period in which they can be disallowed by Parliament has elapsed. This prevents a disallowed guideline from having effect between the date of tabling in Parliament and the date of disallowance. [ Schedule 4, item 10, subsection 402-780(3 )]
Water Minister and Water Department
4.26 For consistency, the defined terms Water Minister and Water Department will be added to the income tax law. [ Schedule 4, items 11 and 12 ]
4.27 Currently, as noted in paragraph 4.5, the Water Minister is the Minister for Climate Change and Water, and the Water Department is the Department of Environment, Water, Heritage and the Arts.
Application and transitional provisions
4.28 This measure applies for the 2009-10, 2010-11, 2011-12 and 2012-13 income years. [ Schedule 4, item 10, subsection 402-760(2 )]
4.29 A certificate can only be issued for one income year, but a company can receive multiple certificates within and across different income years.
4.30 The legislation for this measure will become inoperative once the plan finishes in 2013-14. As a result, the provisions are repealed with effect from 1 July 2014. [ Schedule 4, items 16 to 18 ]
4.31 To allow the revocation of certificates after the provisions are repealed, the legislation will specifically preserve the operation of the revocation provisions, as well as the appeal rights of the taxpayer, for 10 years after repeal. [ Schedule 4, item 19 ]
4.32 A reference to the urban water tax offset is added to the list of tax offsets in section 13-1 of the ITAA 1997. [ Schedule 4, item 2, section 13-1 ]
4.33 Section 67-25 of the ITAA 1997 currently lists all refundable tax offsets in various subsections. For clarity, the existing subsections are repealed and rewritten into a table. A reference to the urban water tax offset is added to this table. [ Schedule 4, items 3 and 6 ]
4.34 Due to the shift of the table into section 67-23, a number of references to refundable tax offsets in various Acts are amended to reflect this. [ Schedule 4, items 1, 7 to 9 and 13 to 15 ]
4.35 The heading of section 67-25 is amended to reflect the content of what remains in that section. [ Schedule 4, items 4 and 5 ]
4.36 This Schedule amends the ITAA 1997 to provide a general exemption from capital gains tax for capital gains arising from a right or entitlement to a tax offset, deduction or similar benefit. That measure would also apply to the tax offsets detailed in this Schedule.