With Australia moving towards an integrated action to reduce carbon emissions, including developing an Australian Emissions Trading Scheme (AETS), the effects of such a scheme need to be properly addressed by the Australian tax system.
A joint report of the Institute of Chartered Accountants in Australia (the Institute) and Ernst & Young, released on 7 April, recommends tax policies which are consistent with reducing global carbon emissions while maintaining and enhancing Australia’s economic attractiveness.
The report argues that our current tax system will not properly deal with the AETS in a number of areas and makes a number of recommendations including the following:
An exemption is needed from income tax and capital gains tax in relation to the free allocation of AETS permits to all recipients.
For GST purposes, emission permits be characterised as things other than goods and real property to avoid difficulties that may arise in respect of international trade. Furthermore, any transactions involving AETS permits should have a uniform GST treatment.
In the event that the AETS is introduced prior to the abolition of stamp duty in some states, those states should be encouraged to exempt the transfer of AETS permits and offset credits from stamp duty until relevant stamp duty is fully eliminated.
Clarity and consistency of treatment of expenditure is needed to ensure that costs incurred in relation to the abatement of greenhouse gases are deductible for Petroleum Resources Rent Tax purposes.
The report also identifies some potential tax incentives geared towards reducing the burden on business of the significant capital expenditures and adjustments associated with AETS. The following actions are proposed for the Government to consider:
Increase the deduction on eligible clean technology R&D expenditure
Extend the scope of the Refundable Tax Offset for companies developing Clean-tech technologies
Allow companies using depreciating assets for R&D on Clean-tech technologies to claim an annual one-third write-off for qualifying plant expenditure at the rate of 125 per cent, to recognise the costs associated with commercialising new clean technology or incorporating clean technology into existing operations
Consider improving the expenditure eligible for outright deductibility.