Clean Energy Future

The income tax treatment of emissions units will be provided in specific provisions in the tax law to provide certainty to taxpayers as to their income tax treatment.

Supplies of eligible emissions units under the carbon price will be goods and services tax (GST)-free subject to agreement of the States and Territories. The normal GST rules will apply to transactions involving financial derivatives of units and the payment of grants.

The accounting treatment of permits and auditing of carbon pollution under the carbon price will continue to be determined in accordance with international standards, as adopted in Australia.

Income tax treatment of units

The Government recognises the importance of providing certainty in the way the tax law treats units under the carbon price, as increased certainty will reduce compliance and administration costs faced by taxpayers in their interaction with the tax law.

Specific legislative provisions will set out the income tax treatment of units, rather than taxpayers having to rely on the application of the general provisions of the existing tax law. The specific provisions in the tax law will provide a set of general rules that are intended to be robust across all types of units that are able to be registered on the Australian National Registry of Emissions Units.

Broadly, the proceeds from selling a unit will be assessable in the income year the unit is sold. A deduction will be allowed for any expenditure incurred on the purchase of the unit. However, the deduction will effectively be deferred through the rolling balance method (similar to current trading stock rules in the tax law) until such time as the unit is surrendered or sold.

Any assistance provided in the form of cash grants will be treated according to the existing tax law.

Where assistance provided in the form of freely allocated units is effectively a monetary transfer, then it will be treated in the same way as a cash grant and the market value of the unit will be included in the taxpayer’s assessable income in the income year it is received and a deduction allowed upon surrender or sale.

Freely allocated units provided under the Jobs and Competitiveness Program will be valued at zero provided the income year ends on or before the surrender date for the compliance year for which they were issued. This avoids a situation where an emission intensive trade exposed entity is required to pay tax on their units before they have an opportunity to use them, therefore potentially affecting their production decisions.

GST treatment of units

The Government is committed to minimising compliance costs for taxpayers by making eligible emissions units under the carbon price GST-free. This will allow transactions of units via an open exchange to operate without reference to GST rules and on a uniform market price. This approach is consistent with the recommendations of the Australia’s Future Tax System Review. The GST-free treatment of units is however subject to the agreement of the States and Territories as it involves a change to the GST base. For this reason, the commencement of the GST-free treatment of units is contingent on an announcement by the Treasurer in the Gazette that the agreement of all States and Territories has been obtained. The normal GST rules will apply until such time as this occurs. Under the normal GST rules, GST would be payable on purchases of units with offsetting input tax credits available to business purchasers. No GST would apply to imported or exported units.

Normal GST rules will continue to apply to transactions involving financial derivatives of units and payments of grants. The application of the GST rules to financial derivatives of units and the payment of grants do not give rise to the same compliance issues that arise in the application of the normal GST rules to units.

Accounting and audit issues

The accounting treatment of permits and auditing of carbon pollution will be determined in accordance with international standards, as adopted in Australia, to ensure that the cost of capital is minimised.

Further Information

For further information, call 1800 057 590.