Revised Explanatory Memorandum(Circulated by the authority of the Minister for the Environment, the Hon Greg Hunt MP and the Treasurer, the Hon J.B. Hockey MP)
Chapter 3 - Consequential taxation amendments
Outline of chapter
3.1 Chapter 3 explains the consequential amendments to taxation provisions associated with repeal of the carbon tax. Specifically, these amendments repeal redundant provisions in the:
- income tax, goods & services tax (GST) and petroleum resource rent tax (PRRT) legislation relating to emissions units issued and charges imposed under the carbon tax; and
- taxation administration legislation relating to the disclosure of taxpayer information by the Commissioner of Taxation (Tax Commissioner) to the Regulator.
Context of amendments
3.2 The establishment of the carbon tax introduced a number of amendments to the existing tax provisions to provide specific income tax and GST treatment for emissions units. These amendments reduced the compliance costs that taxpayers would have otherwise faced in using the ordinary income tax and GST provisions.
3.3 Amendments also provided that where a liable entity failed to meet its surrender obligations the resulting unit shortfall charge was not deductible expenditure for income tax and PRRT purposes. This approach was designed to ensure that taxpayers who are non-compliant liable entities face the full costs of non-compliance.
3.4 Due to the repeal of the carbon tax these amendments are no longer required and are removed from the taxation provisions.
Comparison of key features of new law and current law
|New law||Current law|
|Income tax treatment of redundant units|
|The discrete income tax provisions that apply to emissions units on the Registry no longer apply to redundant units, namely carbon units and prescribed international units.||Discrete income tax provisions apply to emissions units on the Registry, including carbon units, Kyoto units, prescribed international units and ACCUs.|
|GST treatment of redundant units|
|GST-free treatment is removed from redundant emissions units, namely carbon units and prescribed international units.||Carbon units, eligible ACCUs and eligible international emissions units are GST-free.|
|Petroleum Resource Rent Tax treatment of redundant units|
|As a result of ending the JCP, the provision which includes in the assessable receipts of a petroleum project amounts received from the sale of free JCP carbon units is removed as it is redundant.||Amounts received in relation to a petroleum project from the sale of free JCP carbon units are included in assessable receipts of that project.|
|Unit shortfall charge|
|Redundant income tax and PRRT provisions relating to the unit shortfall charge are removed.||Unit shortfall charge is not deductible expenditure under the income tax provisions and is excluded expenditure under the PRRT provisions.|
|International Unit Surrender Charge|
|Redundant income tax provisions relating to a charge imposed on the surrender of an eligible international emissions unit are removed.||An income tax deduction is available for a charge imposed on the surrender of an eligible international emissions unit.|
|Provision of information by the Tax Commissioner to the Regulator|
|Redundant taxation administration provisions which allow the Tax Commissioner to provide carbon tax related information to the Regulator are removed.||The taxation administration provisions allow the Tax Commissioner to provide carbon tax related information to the Regulator.|
Detailed explanation of new law
Taxation treatment of redundant units
Income tax treatment of units
3.5 Discrete income tax provisions were introduced as a part of the Clean Energy Legislation concerning the income tax treatment of units registered on the Registry, namely carbon units, Kyoto units, prescribed international units and ACCUs. The amendments inserted Division 420 of the ITAA 1997, which provided for a rolling balance treatment for units registered on the Registry.
3.6 As the taxation provisions in respect of carbon units and prescribed international units become redundant with the repeal of the carbon tax, these amendments remove these provisions from the ITAA 1997. [Schedule 1, items 158 to 195 (excluding 179), sections 104-5, 104-205(1)(a)(i) to (iv), 112-97, 118-15(2), 420-10(a) and (c), 420-15(1) (note), 420-15(3), 420-20(3), 420-21(1)(a)(i)-(iv), 420-21(1) (example), 420-21(2)(a)(i)-(iv), 420-35(b)(i) and (ii), 420-35 (example), 420-51(1) and (2), 420-52(a)(i), 420-52(b), 420-55(6), 420-57(9), 420-58, 420-60(1), (2) and (4), 420-65(3), 420-70(3) and 995-1(1), ITAA 1997]
3.7 Division 420 continues to apply to the other categories of emissions units that continue to be held on the Registry, namely ACCUs and Kyoto units. Retaining these provisions ensures continued certainty and reduced compliance costs for entities using these units, as it provides clarity on the tax treatment of these units without the need for further interpretation under various provisions of the tax law.
GST-free status of units
3.8 The Clean Energy Legislation also amended the GST Act to ensure that the supplies of eligible emissions units, as defined in the CE Act, are GST-free. These provisions in respect of carbon units and prescribed international units become redundant with the repeal of the carbon tax.
3.9 A definition of 'eligible emissions unit' is included in the GST Act to ensure that GST-free status continues to apply to the categories of emissions units that continue to exist. This definition effectively excludes redundant carbon units and prescribed international units. [Schedule 1, items 7, 8 and 9, section 195-1, GST Act]
3.10 The amendments achieve this by importing definitions of eligible international emissions unit and eligible Australian carbon credit unit into the GST Act under the definition of an 'eligible emissions unit'. 'Eligible Australian carbon credit unit' has the same meaning as in the CE Act prior to its repeal and 'eligible international emissions unit' has the same meaning as in the ANREU Act, which no longer includes prescribed international units due to the repeal of the carbon tax. The effect of importing these definitions into the GST Act is that ACCUs and eligible international emissions units (excluding prescribed international units) retain their GST-free status. [Schedule 1, items 7, 8, 9 and 19, section 195-1, GST Act and section 4, ANREU Act]
Treatment of units under the Petroleum Resource Rent Tax provisions
3.11 The Petroleum Resource Rent Tax Assessment Amendment Act 2012 made amendments to the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTA Act) to ensure that amounts received from the sale of free carbon units issued under the JCP in relation to a petroleum project are included in assessable receipts of that project. The carbon tax repeal terminates the JCP and as a result a consequential amendment is required to remove provisions relating to this program. [Schedule 1, items 316 and 317, section 28(1)(b)(iii) and 28(1)(c), PRRTA Act]
Application and transitional provisions relating to redundant units
3.12 The amendments to the taxation provisions apply from the repeal of the carbon tax, effective on 1 July 2014. However, transitional amendments ensure that units issued up to the designated carbon unit day, that day being 9 February 2015 or a later date if specified in a disallowable legislative instrument made by the Regulator, continue to receive the tax treatment that existed prior to 1 July 2014. This ensures that where there is a requirement to issue carbon units to satisfy 2013-14 carbon tax liabilities on or after 1 July 2014, these carbon units continue to remain subject to the discrete taxation provisions that apply to emissions units. [Schedule 1, items 322, 323, 330, 336(2) and 339(1)]
3.13 As no prescribed international units have been issued, registered or prescribed no transitional provisions are needed in respect of these units in the income tax and GST provisions.
Taxation treatment of charges imposed under the Clean Energy Legislation
Unit shortfall charge
3.14 Under the current carbon tax arrangements, if liable entities do not surrender enough eligible emissions units to satisfy their liability, a unit shortfall charge is payable. To ensure non-compliant entities bear the full cost of this charge, provisions included in the ITAA 1997 prevent taxpayers from claiming an income tax deduction in respect of this charge. Provisions are also included in the PRRTA Act to ensure this charge is not recognised as expenditure (that is, it is excluded expenditure).
3.15 The Main Repeal Bill removes redundant provisions relating to the unit shortfall charge with 2013-14 being the last year in which the unit shortfall charge can be applied. Therefore, as the charge can be last applied in respect to the 2013-14 year, this Bill removes these redundant provisions in the ITAA 1997 and the PRRTA Act. Transitional provisions ensure these provisions continue to operate in respect to the periods for which the charge can be applied. [Schedule 1, item 156, section 12-5, ITAA 1997] [Schedule 1, item 157, section 26-18, ITAA 1997] [Schedule 1, item 318, section 44(1)(ia), PRRTA Act] [Schedule 1, item 336(1)] [Schedule 1, item 339(2)]
International Unit Surrender Charge
3.16 Section 420-43 of the ITAA 1997 provides that a taxpayer can deduct an amount of charge imposed by the Clean Energy (International Unit Surrender Charge) Act 2011 on the surrender of an eligible international emissions unit. As this charge was repealed by the Clean Energy (International Emissions Trading and Other Measures) Act 2012, this provision is redundant and as such is removed from the ITAA 1997. [Schedule 1, item 179, section 420-43, ITAA 1997]
Provision of information by the Tax Commissioner to the Regulator
3.17 Table 6, section 355-65(7) of Schedule 1 to the Taxation Administration Act 1953 allows the Tax Commissioner to provide information to the Regulator in respect of the carbon pricing mechanism and the equivalent carbon price on taxable fuels.
3.18 As both of these mechanisms are repealed with effect from 1 July 2014, the information sharing provisions are also repealed with effect from this date. However, the repeal of these provisions does not affect the ability of the Tax Commissioner to continue to provide appropriate information to the Regulator in respect to relevant transactions relating to the operation of the carbon pricing mechanism and equivalent carbon price. For example, the Tax Commissioner may seek verification from the Regulator that a taxpayer was covered by the Opt-in scheme for liquid petroleum fuels when they lodge their claim for fuel tax credits in the second half of 2014 in respect of fuel acquired earlier that was covered by the Opt-in scheme. [Schedule 1, items 319 and 340, section 355-65(7) (table item 3), TAA 1953]
3.19 These amendments provide that provisions relating to the true-up shortfall levy are associated provisions for the purposes of the CE Act. As the existing disclosure of taxpayer information provisions allows the Tax Commissioner to disclose information to the Regulator for the purposes of the associated provisions of that Act, this has the effect that the Tax Commissioner can also disclose information to the Regulator for the purposes of the true-up shortfall levy. [Schedule 1, items 340 and 358A]