Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
CARBON POLLUTION REDUCTION SCHEME (CONSEQUENTIAL
AMENDMENTS) BILL 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Minister for
Climate Change and Water, Senator the Honourable Penny Wong)
Table of contents
Glossary .................................................................................................. 1
General outline of the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010 .................................................. 3
Chapter 1 Amendments to the National Greenhouse and Energy
Reporting Act 2007 ....................................................... 6
Chapter 2 Taxation of emissions units .................................................. 27
Chapter 3 Amendments to the Ozone Protection and Synthetic
Greenhouse Gas Management Act 1989 ................... 61
Chapter 4 Amendments to other legislation .......................................... 69
Chapter 5 Transitional and application provisions................................. 73
Index ..................................................................................................... 79
Glossary
The following abbreviations and acronyms are used in this explanatory
memorandum.
Abbreviation Definition
ACCRA bill Australian Climate Change
Regulatory Authority Bill 2010
Authority Australian Climate Change
Regulatory Authority
AWA Australian Workplace Agreement
CFC Chlorofluorocarbon
CGT Capital gains tax
consequential Carbon Pollution Reduction Scheme
amendments bill (Consequential Amendments) Bill
2010
DCC Department of Climate Change
Eligible international A certified emission reduction (other
emissions unit than a temporary certified emission
reduction or a long-term certified
emission reduction), an emission
reduction unit, a removal unit, a
prescribed unit issued in accordance
with the Kyoto rules
EITE Emissions-intensive trade-exposed
Garnaut Climate Change R. Garnaut, The Garnaut Climate
Review Final Report; Change Review: Final Report,
Garnaut Final Report Cambridge University Press, 2008
GEDO Greenhouse and Energy Data Officer
Green Paper Carbon Pollution Reduction Scheme
Green Paper, July 2008
GST Goods and services tax
GST Act A New Tax System (Goods and
Services Tax) Act 1999
HCFCs hydrochlorofluorocarbons
1
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
HFCs Hydrofluorocarbons
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
Kyoto unit An assigned amount unit, a certified
emission reduction, an emission
reduction unit, a removal unit or a
prescribed unit issued in accordance
with the Kyoto rules
main bill Carbon Pollution Reduction Scheme
Bill 2010
MEC Group Multiple entry consolidated group
The National Registry National Registry of Emissions Units
NGER Act National Greenhouse and Energy
Reporting Act 2007
ORER Office of the Renewable Energy
Regulator
OTN Obligation transfer number
Ozone Act Ozone Protection and Synthetic
Greenhouse Gas Management Act
1989
PAYG Pay as you go
PFCs Perfluorocarbons
RE(E) Act 2000 Renewable Energy (Electricity) Act
2000
Regulator Renewable Energy Regulator
The Scheme The Carbon Pollution Reduction
Scheme
Scheme entities Entities which are subject to the
Carbon Pollution Reduction Scheme
SES Senior Executive Service
SF6 Sulphur hexafluoride
TAA 1953 Taxation Administration Act 1953
White Paper Carbon Pollution Reduction Scheme:
Australia's Low Pollution Future,
White Paper, December 2008
2
General outline of the Carbon Pollution
Reduction Scheme (Consequential
Amendments) Bill 2010
The Carbon Pollution Reduction Scheme
The rationale for the Carbon Pollution Reduction Scheme is included in
the explanatory memorandum for the Carbon Pollution Reduction Scheme
Bill 2010 (the main bill).
In brief, the Government accepts the key findings of the Garnaut Climate
Change Review Final Report that:
� a fair and effective global agreement delivering deep cuts in
emissions consistent with stabilising concentrations of
greenhouse gases at around 450 parts per million or lower
would be in Australia's interests
� achieving global commitment to emissions reductions of this
order appears unlikely in the next commitment period
� the most prospective pathway to this goal is to embark on
global action that reduces the risks of dangerous climate
change and builds confidence that deep cuts in emissions are
compatible with continuing economic growth and improved
living standards.
The Government's climate change policy is built on three pillars --
reducing Australia's carbon pollution, adapting to the impacts of climate
change that we cannot avoid, and helping to shape a global solution.
The first element, reducing Australia's carbon pollution, will be managed
through:
� the implementation of the Carbon Pollution Reduction
Scheme (the primary tool for driving reductions in
greenhouse gas emissions)
� an expanded national Renewable Energy Target
� investment in renewable energy technologies and in the
demonstration of carbon capture and storage
� action on energy efficiency.
The Carbon Pollution Reduction Scheme Bill 2010 implements the
Carbon Pollution Reduction Scheme. It is described in a separate
explanatory memorandum.
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
The Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010
Introduction
The Carbon Pollution Reduction Scheme (Consequential Amendments)
Bill 2010 includes consequential amendments and transitional provisions.
The consequential amendments include amendments to the National
Greenhouse and Energy Reporting Act 2007 and the taxation legislation to
accommodate the new Scheme. Consequential amendments will also
ensure that regulations under the National Greenhouse and Energy
Reporting Act 2007 must not declare that agricultural emissions are
covered by the Scheme.
The transitional provisions include provisions which are necessary as the
result of amendments which will transfer the functions of the Greenhouse
and Energy Data Officer under the National Greenhouse and Energy
Reporting Act 2007 and the Renewable Energy Regulator under the
Renewable Energy (Electricity) Act 2000 to the Australian Climate
Change Regulatory Authority. These include provisions to enable staff
transferring from the Office of the Renewable Energy Regulator or the
Department of Climate Change to start their employment on the same
terms and conditions as they had prior to transfer.
Structure of the explanatory memorandum
Amendments to the National Greenhouse and Energy Reporting Act 2007
are described in Chapter 1 of this explanatory memorandum.
Amendments to the taxation legislation are described in Chapter 2.
Amendments to the Ozone Protection and Synthetic Greenhouse Gas
Management Act 1989 are described in Chapter 3.
Amendments to other legislation are described in Chapter 4.
The transitional and application provisions in Schedule 1 are described in
Chapter 5.
4
Glossary
Date of effect: Parts 1 and 3 of Schedule 1 and Schedule 2 will come into
effect at the same time as section 3 of the proposed Carbon Pollution
Reduction Scheme Act 2010. Part 2 of Schedule 1 will come into effect on
1 July 2011. Part 4 of Schedule 1 commences retrospectively, amending
references from their commencement in various Acts to the main bill,
consequential amendments bill and ACCRA bill.
Proposal announced: The measures are based on the positions included
in the White Paper entitled Carbon Pollution Reduction Scheme:
Australia's Low Pollution Future released by the Government on
15 December 2008. The Prime Minister announced some changes to the
Scheme, including to manage the impacts of the global recession, on
4 May 2009. Further proposals relating to industry assistance were
announced on 24 November 2009.
Financial impact: The financial impact of the Carbon Pollution
Reduction Scheme is addressed in the explanatory memorandum for the
main bill.
Regulation Impact Statement: A Regulation Impact Statement
accompanied the explanatory memorandum for the main bill as introduced
into the Parliament.
5
Chapter 1
Amendments to the National Greenhouse
and Energy Reporting Act 2007
Outline of Chapter
1.1 The Carbon Pollution Reduction Scheme (the Scheme) places
obligations on entities (Scheme entities) in relation to their emissions and
associated activities which are reported under the National Greenhouse and
Energy Reporting Act 2007 (NGER Act). Consequential amendments
enable this and strengthen specific elements of the NGER Act to support
the Scheme.
1.2 This chapter discusses the amendments to the NGER Act which
are set out in the Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010 (the consequential amendments bill).
Context of amendments
1.3 The NGER Act provides a national framework for the reporting
and dissemination of information related to greenhouse gas emissions,
energy consumption and energy production. Many Scheme entities that are
controlling corporations will already be reporting under the NGER Act. To
maintain the Government's commitment in the White Paper to the
streamlining of reporting of greenhouse and energy data, including for
liable entities, the NGER Act will require greenhouse gas emissions and
associated activities covered by the Scheme to be reported. Amendments to
the existing NGER Act are required to support the Scheme.
1.4 In line with the Government's commitment to the streamlining of
reporting of greenhouse gas emissions and energy data, one report will
satisfy an entity's reporting requirements for the Scheme and current
reporting requirements under section 19 of the NGER Act.
1.5 As outlined in the White Paper, the Government's policy is to
establish a single regulator, the Australian Climate Change Regulatory
Authority (the Authority), to administer the Scheme and be responsible for
the functions of the Renewable Energy Regulator (Regulator) and the
Greenhouse and Energy Data Officer (GEDO). The establishment of the
Authority is discussed further in the explanatory memorandum on the
Australian Climate Change Regulatory Authority Bill 2010.
1.6 The introduction of amendments to the NGER Act due to the
Scheme does not alter the effect of reporting provisions for controlling
6
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
corporations under that Act as they were introduced in that Act in 2007.
This is because the NGER Act will continue to have objects in addition to
underpinning the Scheme including:
� informing Australian government policy formulation and the
Australian public,
� meeting Australia's international reporting obligations,
� assisting Commonwealth, State and Territory government
programs and activities, and
� avoiding duplication of similar reporting requirements in the
States and Territories.
Summary of new law
1.7 The consequential amendments to the NGER Act are in Schedule
1 of the consequential amendments bill. This Schedule is divided into three
Parts:
� Part 1 deals with amendments commencing at the same time
as section 3 of the Carbon Pollution Reduction Scheme Act
2010 commences (that is 28 days after the main bill and the
Acts listed in Item 2 of the table in section 2 of the main bill
receive Royal Assent). The relevant amendments in this Part
are largely concerned with replacing references to the
Greenhouse and Energy Data Officer (GEDO) with
references to the Authority.
� Part 2 includes amendments to the NGER Act that
commence on 1 July 2011.
� Part 3 deals with Amendments that are contingent on the
commencement of Schedule 1 to the National Greenhouse
and Energy Reporting Amendment Act 2009. The relevant
amendments in this Part are largely concerned with replacing
references to the GEDO with references to the Authority
upon commencement of the aforementioned Act.
1.8 This approach is adopted because the GEDO will cease to
administer the NGER Act when section 3 of the Carbon Pollution
Reduction Scheme Act 2010 commences and the Authority is established.
By contrast, reporting obligations for Scheme entities under the NGER Act
will only commence from 1 July 2011, the start of the Scheme.
7
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Part 1 Amendments
Replacement of references to the Greenhouse and Energy Data Officer
1.9 Currently the GEDO is responsible for administration of the
NGER Act and is established under section 49 of that Act. References to
the Greenhouse and Energy Data Officer are replaced with references to the
Authority.
Part 2 Amendments
Definitions
1.10 Key definitions are amended so that they apply consistently to
Scheme entities across both the main bill and the NGER Act.
Registration
1.11 Registration under the NGER Act is required by entities that will
have reporting obligations due to the Scheme. These entities include:
� liable entities,
� holders of an Obligation Transfer Number (OTN) that are not
liable entities, and
� fuel suppliers that are not liable entities.
1.12 The names of persons who are registered under the NGER Act
will be published on the (National Greenhouse and Energy Reporting)
Register on the Authority's website.
Deregistration
1.13 Entities are allowed to apply to deregister if they meet the
requirements for deregistration under the NGER Act. An entity is
deregistered once the Authority takes the person's name off the (National
Greenhouse and Energy Reporting) Register on the Authority's website.
Reporting
1.14 As a result of the introduction of the Scheme, liable entities and
OTN holders and fuel suppliers who are not also liable entities are also
required to report under the NGER Act. Different reporting requirements
may apply in different circumstances. This segment of the explanatory
memorandum also discusses the effect of liability transfer certificates on
reporting.
Methodologies
1.15 The National Greenhouse and Energy Reporting (Measurement)
Determination 2008 will be strengthened and updated to allow for reporting
by Scheme entities and to provide for more accurate reporting under the
Scheme, as outlined in the White Paper.
8
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
Audit
1.16 Entities with a gross emissions number exceeding a specified
amount (initially 125,000) are required to have their emission reports
audited prior to submission.
Penalties
1.17 Penalties for provisions in the NGER Act that relate to Scheme
obligations and liability have been increased to align with penalties under
the main bill.
Other general amendments
1.18 Other amendments align the NGER Act with the main bill. This
will make understanding both the legislation and compliance regime
simpler for entities with obligations under both pieces of legislation.
Comparison of key features of new and current law
New law Current law
Emissions, scope 1 (direct) The definition of emissions includes scope 1
and scope 2 (indirect) are (direct) and scope 2 (indirect) emissions
defined separately
The statutory authority that is The statutory authority that is responsible for
responsible for enforcing the enforcing the NGER Act is the Greenhouse
NGER Act is the Authority and Energy Data Officer
Defines potential greenhouse Potential greenhouse gas emissions are not
gas emissions embodied in an included in the NGER Act
amount of eligible upstream
fuel
Greenhouse gas and Greenhouse gas reporting obligations only
associated reporting apply to controlling corporations
obligations can apply to all
legal entities defined as a
`person'
Operational control is Operational control and the Greenhouse and
amended to: include persons; Energy Data Officer's ability to declare
allow for a declaration of operational control only applies to members
operational control by the of a controlling corporation's group.
Authority in relation to
persons; and to require the
nomination of a liable entity
where entities have equal
authority, for example joint
ventures, partnerships, trusts
Facility and activity Facility and activity definitions do not
definitions include carbon include situations where there are no
capture and storage, and operations occurring (for example closed
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
New law Current law
landfill facilities landfill facilities)
Scheme entities will have to Only controlling corporations that meet
register and meet reporting NGER Act thresholds are required to register
obligations under the NGER and meet reporting obligations
Act.
Where an entity has elected to No restrictions on maintaining a higher order
use a higher order method it method where an entity elects to use one
must do so for a minimum of
four years
Record keeping requirement Record keeping requirement is seven years
is five years for the Scheme for the NGER Act
and the NGER Act
Penalties for provisions that Penalties generally only apply to controlling
are relevant to the Scheme are corporations. Maximum penalty is 2000
increased to be in line with penalty units.
Scheme penalties. Maximum
penalty is 10,000 penalty
units.
Consequential amendments
Replacement of references to the Greenhouse and Energy Data Officer
etc.
1.19 References to the GEDO and a member of the staff of the Officer
are replaced with references to the Authority and officials of the Authority.
[Schedule 1, Part 1, items 13-15] [Schedule 1, Part 1, items 16-65]
1.20 Comparable amendments contingent on the commencement of
Schedule 1 to the National Greenhouse and Energy Reporting Amendment
Act 2009 are included in Part 3 of Schedule 1 [Schedule 1, Part 3, items 227 -
232] [Schedule 1, Part 3, items 234 and 235]. Also included in this Part is an
amendment to paragraph 47(f) (which relates to civil penalties for chief
executive officers of corporations) to change `signed' to `made'. [Schedule 1,
Part 1, item 77A] A similar amendment is made to subsection 75A(7) (which
relates to the proposed Register of greenhouse and energy auditors) to
change `signed' to `written' [Schedule 1, Part 3, items 233].
1.21 An amendment is included so that an official of the Authority has
the same meaning as in the ACCRA Bill. [Schedule 1, Part 1, item 15A]
1.22 An amendment is included so that protected information has the
same meaning as in the ACCRA Bill. [Schedule 1, Part 1, item 15B]
10
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
Definitions
Overview
1.23 This section outlines amendments as a consequence of the
introduction Scheme to the NGER Act to incorporate new definitions,
amend existing definitions and include definitions that will have the same
meaning under the Carbon Pollution Reduction Scheme Act 2010 and the
NGER Act.
Emissions
1.24 The definition of `emissions' under the NGER Act encompasses
scope 1 (direct) and scope 2 (indirect) emissions. Scheme liability is
attached to a subset of scope 1 emissions of greenhouse gas. The NGER
Act is amended to take this into account so that a scope 1 emission and a
scope 2 emission are separately defined. [Schedule 1, Part 2, item 116]
1.25 Definitions of a `scope 1 emission' and a `scope 2 emission' are
included in section 10 of the NGER Act. [Schedule 1, Part 2, items 137-138]
1.26 Section 10 also allows for a scope 1 and a scope 2 emission to be
prescribed in regulations. Proposed subsection 10(2A) of the NGER Act
will provide that the regulations must declare that specified scope 1
emissions are covered by the Scheme (and therefore lead to liability under
the Scheme as outlined in Chapter 1 of the explanatory memorandum on the
main bill). [Schedule 1, Part 2, items 156-162]
Greenhouse gas
1.27 The definition of greenhouse gas applies for the purposes of both
the Carbon Pollution Reduction Scheme Act 2010 and the NGER Act.
1.28 For the purposes of both Acts, synthetic greenhouse gas includes
sulphur hexafluoride and specific hydrofluorocarbons and perfluorocarbons.
1.29 Regulations may also prescribe new greenhouse gases if required.
It is intended that a new greenhouse gas would only be included in
regulations if it becomes a gas that is agreed internationally to be included
for the purposes of meeting Australia's international emissions reduction
obligations. If a new gas is included for these purposes it is most likely to
be a synthetic greenhouse gas. A new gas will not be added during the first
commitment period of the Kyoto Protocol 2008-2012. [Schedule 1, Part 2, item
146] [Schedule 1, Part 2, item 120] [Schedule 1, Part 2, item 140]
Carbon dioxide equivalence
1.30 The definition of `carbon dioxide equivalence' (CO2-e) in the
NGER Act is amended to provide for calculating:
� the carbon dioxide equivalence of an amount of greenhouse
gas
11
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
� the carbon dioxide equivalence of an amount of potential
greenhouse gas emissions embodied in an amount of an
eligible upstream fuel.
1.31 The carbon dioxide equivalence of an amount of greenhouse gas
(metric weight) means the amount of the gas multiplied by a value specified
in the regulations in relation to that kind of greenhouse gas. This value is
the internationally accepted global warming potential for that gas. [Schedule
1, Part 2, item 112] [Schedule 1, Part 2, item 146]
Potential greenhouse gas emissions
1.32 `Potential greenhouse gas emissions' embodied in an amount of
eligible upstream fuel and their carbon dioxide equivalence are defined to
allow for reporting of emissions from eligible upstream fuels. [Schedule 1,
Part 2, item 135] [Schedule 1, Part 2, item 146]
Liable entities, controlling corporations and corporate groups
1.33 To the extent it underpins the Scheme, the NGER Act applies to
all legal entities covered by the Carbon Pollution Reduction Scheme Act
2010, through the definition of `person'. [Schedule 1, Part 2, item 134] [Schedule
1, Part 2, item 127] [Schedule 1, Part 2, item 122A]
1.34 To reflect the approach under the Scheme to liability and
operational control over a facility, the definition of `groups' under the
NGER Act is amended and references to joint ventures and partnerships are
removed. (For detail on the treatment of joint ventures, partnerships and
trusts, see Chapter 1 of the explanatory memorandum to the main bill,
particularly the segment relating to operational control). [Schedule 1, Part 2,
items 147-149] [Schedule 1, Part 2, item 128] [Schedule 1, Part 2, item 142] [Schedule 1,
Part 2, item 125A]
1.35 A provision is included to avoid doubt that a controlling
corporation's group may consist of the controlling corporation alone.
[Schedule 1, Part 2, item 150]
1.36 The definition of a non-group entity identifies any person that is a
member of a controlling corporation's group (essentially this encompasses
individuals and any other entities that are not a constitutional corporation).
[Schedule 1, Part 2, item 129] These entities only have obligations under the
NGER Act because of obligations under the Scheme.
Operational control
1.37 Operational control is used to allocate emissions obligations for a
covered facility. The operational control approach is adopted for the
Scheme as it places obligations on the person that has the greatest ability to
introduce and implement operational and environmental policies for a
covered facility. In addition many entities have already begun organising
emission reporting systems around the operational control approach as
defined in the NGER Act.
12
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
1.38 The definition of operational control underpins both the Carbon
Pollution Reduction Scheme Act 2010 and the NGER Act through the
expansion of operational control to all Scheme entities through its
application to any person. [Schedule 1, Part 2, items 163-170]
1.39 To support this inclusion and the Scheme's approach to liability
the definition of operational control in the NGER Act includes:
� an operational control provision for the person who has the
greatest authority over operational and environmental
policies (section 11A); and
� provisions that relate to circumstances where more than one
person has authority over operational and environmental
policies (sections 11B and 11C).
1.40 For detail on these provisions, see Chapter 1 of the explanatory
memorandum to the main bill, particularly the segment on operational
control. [Schedule 1, Part 2, items 171-172] [Schedule 1, Part 2, item 132] [Schedule 1,
Part 2, item 119B]
1.41 The Authority may make a declaration in regard to operational
control in relation to a non-group entity either on application by the
non-group entity or at the Authority's own initiative. [Schedule 1, Part 2, item
191] [Schedule 1, Part 2, item 193] The NGER Act previously provided for such
declarations only in relation to constitutional corporations and members of
their groups (section 55).
1.42 The Authority cannot declare that a member of a corporation's
group or a non-group entity has operational control unless it is satisfied that
the entity has substantial authority over operating and environmental
policies. Further, in the case of an application by a member of a controlling
corporation's group for a declaration of operational control, the controlling
corporation must have consented to the application. [Schedule 1, Part 2, items
190-191]
Facility
1.43 The definition of a `facility' applies to both the NGER Act and the
Carbon Pollution Reduction Scheme Act 2010. The Authority may declare a
facility on application by a controlling corporation or a non-group entity or
at its own initiative. [Schedule 1, Part 2, items 151-153] [Schedule 1, Part 2, items
188A-189] [Schedule 1, Part 2, item 192]
1.44 The limitation of the definition of a `facility' and `greenhouse gas
projects' to oil and gas extraction activities in the exclusive economic zone
is removed so that the NGER Act can apply to emissions such as those
from carbon storage facilities under the sea bed. [Schedule 1, Part 2, items 121-
122] [Schedule 1, Part 2, item 154] [Schedule 1, Part 2, item 130]
1.45 A definition for carbon capture and storage is inserted into the
NGER Act to ensure that the definition of `activity' extends to carbon
capture and storage. [Schedule 1, Part 2, item 110-111]
13
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
1.46 To allow for the coverage of emissions from solid waste and other
things such as stockpiling and storage the definition of `activity' in relation
to a facility is expanded. [Schedule 1, Part 2, item 110]
1.47 In addition, `operation' in relation to a facility will be defined to
include the subsistence of the facility. For example a closed landfill facility
continues to emit greenhouse gas emissions and is therefore still considered
to be in operation even though waste is no longer being received. [Schedule 1,
Part 2, item 131]
1.48 Subsection 9(3) of the NGER Act currently provides that, for the
purposes of paragraph 9(1)(a) of the NGER Act, the activity or activities
constituting the undertaking or enterprise must not be attributable to more
than one industry sector. The question as to which industry sector a facility
belongs is used for statistical purposes only and not for determining what a
facility is. Therefore subsection 9(3) is removed from the NGER Act.
[Schedule 1, Part 2, item 155]
Approved
1.49 A definition of `approved by the Authority' has been included to
make it clear that where the Authority has approved something, this means
that it has done so in writing, for the purposes of the provision in which the
term occurs. This also ensures that such a provision will attract the
provisions in the Acts Interpretation Act 1901 concerning varying and
revocation. [Schedule 1, Part 2, item 110A]
Further amendments to definitions
1.50 The terms listed below will be defined in the NGER Act by
reference to the Carbon Pollution Reduction Scheme Act 2010:
� `carbon pollution reduction scheme' [Schedule 1, Part 2, item
112A]
� `eligible financial year' [Schedule 1, Part 2, item 114]
� `eligible upstream fuel' [Schedule 1, Part 2, item 115]
� `emissions number' [Schedule 1, Part 2, item 117]
� `foreign country' [Schedule 1, Part 2, item 119A]
� `import' [Schedule 1, Part 2, item 123]
� `liable entity' [Schedule 1, Part 2, item 126]
� `liability transfer certificate' [Schedule 1, Part 2, item 126A]
� `OTN' [Schedule 1, Part 2, item 131A]
� `provisional emissions number' [Schedule 1, Part 2, item 136]
� `quote' [Schedule 1, Part 2, item 136A]
� `supply' [Schedule 1, Part 2, item 139]
14
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
� Other terms will be defined in the NGER by reference to other Acts. The
terms `continental shelf' [Schedule 1, Part 2, item 113] and `territorial sea'
[Schedule 1, Part 2, item 141] are defined in the Seas and Submerged Lands Act
1973. `Joint Petroleum Development Area' [Schedule 1, Part 2, item 125] is
defined in the Petroleum (Timor Sea Treaty) Act 2003, while `trust'
[Schedule 1, Part 2, item 142], `trustee' [Schedule 1, Part 2, item 143] and `trust
estate' [Schedule 1, Part 2, item 144] are defined in the Income Tax Assessment
Act 1997.
Registration
1.51 The following Scheme entities are required to apply to register
under the NGER Act by 31 August following the first financial year which
triggers their registration requirement:
� Category A- controlling corporations that meet a threshold
under section 13 of the NGER Act
� Category B - liable entities
� Category C - OTN holders that are not liable entities
� Category D - fuel suppliers that are not liable entities
1.52 Registration occurs under two separate Divisions of the NGER
Act, Division 3 and Division 4. Only Category A entities - controlling
corporations that meet a threshold outlined in section 13 of that Act - are
required to apply to register under Division 3. If a controlling corporation is
already registered under that Division and subsequently becomes a
Category B, C or D entity it will not be required to register again under
Division 4. If an entity registers under Division 4, that is, a Category B, C
or D entity, it will also only have to register once, with one exception
outlined in the following paragraph.
1.53 If a controlling corporation is registered under Division 4 of the
NGER Act and subsequently meets a threshold under section 13 of that Act,
it will be required to register under Division 3 of that Act and,
consequently, to report under section 19 of that Act. In this instance, it is
intended that registration under Division 3 will be streamlined so that the
controlling corporation would not be required to fill out all of the details
provided in its original registration. The number of controlling corporations
that will need to do this is expected to be minimal as it is most likely that a
controlling corporation will be registered under Division 3 in the first
instance due to obligations under the NGER Act that exist prior to the
commencement of the Scheme. [Schedule 1, Part 2, items 173-173E] [Schedule 1,
Part 2, item 174D] [Schedule 1, Part 2, item 174G] [Schedule 1, Part 2, items 136B-136C]
1.54 Once a person has applied to register under the Act, the Authority
must cause their name to be entered on the (National Greenhouse and
Energy Reporting) Register and it will be made available on the Authority's
website. [Schedule 1, Part 2, item 174-174C]
15
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Deregistration
1.55 Once registered, a person may apply to the Authority deregister.
The Authority must deregister the person provided that:
� If they are a controlling corporation, they are unlikely to
meet any of the thresholds in section of the NGER Act for
the financial year in which they apply and are not likely to
meet one of those thresholds in the following two financial
years,
� if they are not a liable a liable entity for the financial year in
which they apply and are not likely to be a liable entity the
following 2 financial years,
� they do not hold an OTN, and
� they do not supply eligible upstream fuels or synthetic
greenhouse gas to a person who quotes their OTN for that
supply.
1.56 A person ceases to be registered in the NGER Act when the
Authority removes their name from the (National Greenhouse and Energy
Reporting) Register. [Schedule 1, Part 2, item 174F-174G]
Reporting
1.57 As outlined above, reporting requirements under section 19 of the
NGER Act will continue to apply to controlling corporations that meet a
threshold under section 13 of that Act and therefore register under Division
3 of that Act. That is, the introduction of the Scheme does not alter the
effect of reporting provisions for controlling corporations under that Act.
This is because the NGER Act has objects in addition to underpinning the
Scheme including:
� informing Australian government policy formulation and the
Australian public
� meeting Australia's international reporting obligations
� assisting Commonwealth, State and Territory government
programs and activities, and
� avoiding duplication of similar reporting requirements in the
States and Territories.
1.58 Reporting requirements outlined in this segment are introduced
into the NGER Act by the consequential amendment bill and underpin the
introduction of the Scheme. [Schedule 1, Part 2, item 175-175A] [Schedule 1, Part 2,
item 178] [Schedule 1, Part 2, item 181]
1.59 Liable entities (category B registered persons as outlined above)
are required to report emissions to the Authority by 31 October each year
following the reporting (financial) year. The NGER Act requires reporting
16
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
of matters relevant to liability under the Scheme, including the calculation
of their provisional emissions numbers and final emissions number. Those
persons are also required to report scope 1 emissions of greenhouse gases,
import, manufacture and supply of synthetic greenhouse gases and potential
greenhouse gas emissions embodied in an amount of upstream eligible
fuels, where those matters result in provisional emissions numbers (see new
section 22A). [Schedule 1, Part 2, item 181]
1.60 The NGER Act includes reporting obligations for OTN holders
who are not liable entities (Category C registered entities) and fuel suppliers
who are not liable entities (Category D registered entities).
1.61 OTN holders who are not liable entities must provide a report to
the Authority relating to the supply or supplies of an eligible upstream fuel
or synthetic greenhouse gas (see new section 22C ). [Schedule 1, Part 2, item
181] An OTN enables the transfer of or exemption from Scheme obligations
from upstream suppliers of fuels and synthetic greenhouse gases to
intermediate suppliers and end users of these fuels and gases and allows
entities to avoid situations arising where they face a double liability or a
liability for a use of fuel that does not result in emissions (see Chapter 1 of
the explanatory memorandum on the main bill for a detailed explanation).
1.62 Fuel suppliers who are not liable entities and who supply eligible
upstream fuel to a person who quotes an OTN in relation to that supply
must also provide a report to the Authority relating to the supply or supplies
of an eligible upstream fuel to persons who quote an OTN (see new section
22D ). [Schedule 1, Part 2, item 181]
1.63 Regulations made under the NGER Act may specify different
reporting requirements in different circumstances for OTN holders who are
not liable entities and for fuel suppliers who are not liable entities.
1.64 For example the types of information that may be required by
regulations are quantities of different types of fuel supplied or resupplied to
a person who quotes an OTN. As outlined above, noting the Government's
commitment to the streamlining of reporting of greenhouse gas emissions,
energy consumption and energy production data, a single report will satisfy
an entity's obligations under both the NGER Act and the Scheme. [Schedule
1, Part 2, item 176] [Schedule 1, Part 2, item 181]
17
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Example 1.1
Existing reporter -- not liable under the Scheme
Company A consumes 250 terajoules of energy and has direct
emissions of 5000 tonnes CO2-e in 2011-2012. It therefore has
obligations to register and report because it meets an energy threshold
under section 13 of the NGER Act. It is not a liable entity under the
Scheme.
Company A's reporting requirements under the NGER Act will remain
unchanged and it will not have any additional reporting obligations due
to the Scheme.
Example 1.2
Existing reporter -- liable under the Scheme
Company B has obligations to register and report because it has
operational control over a facility with typical annual scope 1 (direct)
emissions of 35,000 tonnes CO2-e. It therefore meets the threshold
under paragraph 13(1)(d) of the NGER Act. Its scope 1 (direct
emissions) are fugitive emissions from a mine site and are listed as
covered emissions under the Scheme. It will therefore become a liable
entity from 1 July 2011.
Company B's reporting requirements under the NGER Act will remain
unchanged and it will have additional reporting requirements due to the
Scheme from 1 July 2011 onwards such as:
� specified scope 1 (direct) emissions covered by the Scheme
� the calculation of its provisional emissions number
� the calculation of its final emissions number
Example 1.3
New reporting entity -- direct emitter
A local governing body is a Scheme entity from 1 July 2011 due to
emissions from its landfill facility that exceed the facility threshold,
but was not previously captured by the NGER Act as it is not a
constitutional corporation. The local governing body will have
reporting obligations relating to its emissions from 1 July 2011
onwards such as:
� specified scope 1 (direct) emissions covered by the Scheme
� the calculation of its provisional emissions number
� the calculation of its final emissions number
The local governing body will not have any other obligations under the
NGER Act such as reporting of scope 2 (indirect) emissions, energy
production and energy consumption as it is not a controlling
corporation and is therefore not required to register under section 12
and Division 3 or report under section 19 of that Act.
18
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
Example 1.4
New reporting entity -- independent importer and distributor of
petroleum
Company C is an independent importer of and distributor of petroleum.
It blends, but does not refine petroleum and is therefore not a
significant energy producer or consumer and has no scope 1 (direct)
emissions. It therefore does not meet a threshold under section 13 of
the NGER Act but will be a Scheme entity from 1 July 2011. Company
C will have to report information from Scheme commencement such
as:
� potential greenhouse gas emissions embodied in the petroleum that
it imports
� information required by regulation such as fuel sold under an OTN
� the calculation of its provisional emissions number
� the calculation of its final emissions number
Company C will not have any other obligations under the NGER Act
such as reporting of: scope 1 emissions that are not covered by the
Scheme; scope 2 (indirect) emissions; energy production; and energy
consumption.
Liability transfer certificates -- effect on group thresholds and
reporting
1.65 Liability transfer certificates are discussed in more detail in
Chapter 1 of the explanatory memorandum to the main Bill.
1.66 Where an entity is a holder of a liability transfer certificate it is
required to provide a report to the Authority relating to the greenhouse gas
emissions, energy production and energy consumption from the operation
of that facility relating to the whole, or part of the year for which it holds
that certificate (see new section 22E ). [Schedule 1, Part 2, item 181] As for
other liable entities, the holder of the liability transfer certificate will also be
required to report those matters relevant to it being the liable entity for that
facility (see new section 22E). [Schedule 1, Part 2, item 181]
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
1.67 In practice, this means that where an entity transfers liability
within a group (under a Category A liability transfer certificate), that
facility will still contribute toward its emissions for the purposes of
calculating whether it meets a group threshold under section 13 of the
NGER Act.
Example 1.5
Corporation A
Corporation A's group Corporation A is the controlling
consists of subsidiaries X corporation for subsidiaries X and Y
and Y
Subsidiary X Subsidiary Y
X has operational control over Y does not have operational control
facilities 1 and 2 over Facility 1 or 2, but is part of
controlling corporation A's group
Transfer of
liability certificate
issued to
Subsidiary Y
Facility 1 Facility 2
Liability transfer certificate is issued for Subsidiary Y in relation to
Facility 2.
Facility 2 will continue to form part of Corporation A's group for the
purposes of meeting group thresholds under the NGER Act.
20
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
1.68 Where liability for a facility has been transferred away from an
entity using a Category A or a Category B liability transfer certificate, that
entity that will not have reporting obligations for that facility. This is given
effect for liable entities that are required to register under Division 4 of the
NGER Act by the exemption --liability transfer certificate paragraphs in
clauses 17, 18, 20 and 21 of the main bill. This is also given effect for
controlling corporations that are required to register under Division 3 of the
NGER Act and report under section 19 of that Act by item 177 of the
consequential amendments bill. [Schedule 1, Part 2, item 177]
Members may input data into reports through administrative
arrangements
1.69 Sub-sections 19(4) and 19(5) have been removed from Section 19
of the NGER Act. [Schedule 1, Part 2, item 177] This is because controlling
corporations will have to sign off on a report, meaning that members will
not be able to provide part of a report directly to the Authority. Members of
a corporate group will, however, be able to input data into reports through
administrative arrangements that do not have to be reflected in the NGER
Act.
Methodologies
1.70 Emissions estimation methodologies under the Scheme are those
set out under the National Greenhouse and Energy Reporting
(Measurement) Determination 2008 that is made by the Minister under sub-
section 10(3) of the NGER Act.
1.71 Some entities will be required to use restricted methodologies
under the Scheme. These entities include:
� Electricity generators will be required to use Methods 2-4 (as
required under the National Greenhouse and Energy
Reporting (Measurement) Determination 2008).
� Liable entities reporting PFC emissions from aluminium
smelting processes will be required to use Methods 2-4.
� Entities reporting fugitive emissions from underground coal
mines will be required to use Methods 2-4.
� Solid waste landfill sites will be required to use Methods 1-3
to estimate the proportion of legacy emissions arising from
landfill sites.
1.72 Where an entity has elected to use Method 2 or above for a
particular source in respect of a particular facility, that methodology will be
the minimum standard for that particular source at that particular facility for
that entity, for a period of four years.
1.73 The National Greenhouse and Energy Reporting (Measurement)
Determination 2008 will be amended to include a national default
21
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
emissions factor for calculating the potential greenhouse gas emissions
from an eligible upstream fuel. If an entity obtains a fuel under an OTN, it
will be required to report emissions related to fuels in accordance with the
requirements set out for direct emitters. (See Chapter 1 of the main bill
explanatory memorandum for more detail.)
1.74 Provisions relating to these policy decisions are expected to be
included in amendments to the National Greenhouse and Energy Reporting
(Measurement) Determination 2008. These amendments are expected to be
made after the Carbon Pollution Reduction Scheme Act 2010 comes into
effect.
Audit
To whom the mandatory audit requirement applies
1.75 A person who is a liable entity for a financial year and who is
required to provide a report under section 22A of the NGER Act and whose
gross emissions number exceeds the number specified in the regulations is
subject to mandatory audit provisions as set out in new section 74AA.
[Schedule 1, Part 2, item 194]
1.76 The gross emissions number for the purposes of section 74AA is
the total of the person's provisional emissions numbers (if any) for the
relevant financial year. This means that excess surrender numbers and make
good numbers are not taken into account for the purposes of meeting the
audit threshold.
1.77 It is expected that the gross emissions number which is initially
prescribed will be 125,000, corresponding to emissions of 125,000 tonnes
of carbon dioxide equivalence. The Government will then consider the
need to extend this requirement on the basis of initial experience,
developments relating to international linking and the compliance burden
on small entities.
Audit requirements
1.78 Any liable entity meeting the above criteria will be required to
appoint an audit team leader who is a registered greenhouse and energy
auditor. [Schedule 1, Part 2, item 194]
1.79 The liable entity must then arrange for that audit team leader to
carry out an audit of its emissions report under section 22A, such other
matters relating to the report as are prescribed in regulations, and
compliance with the record-keeping requirement under section 22B.
1.80 The liable entity must arrange for the audit report to be provided
to them setting out the results of the audit and the liable entity must give the
Authority a copy of this report on the day that the emissions report set out
under 22A is submitted.
22
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
1.81 Regulations may specify the type of audit, the matters to be
covered by the audit, the form of the audit and the kinds of details it is to
contain.
1.82 Ensuring the accuracy of emissions reports will be vital in
achieving the environmental objectives of the Scheme. Penalties will be
included to encourage prompt and effective auditing of emissions reports.
Other audit amendments
1.83 The NGER Act will be amended to apply the existing external
audit provisions to non-group entities. [Schedule 1, Part 2, item 194] [Schedule 1,
Part 2, item 119C]
Public Disclosure
1.84 The Authority will publish, for each eligible financial year, a
Scheme entity's (if any):
� total provisional emissions numbers
� the total of the entity's provisional emissions numbers
relating to scope 1 emissions of greenhouse gas
� the total of any provisional emissions numbers that are
attributable to the import, manufacture or supply of synthetic
greenhouse gas
� the total of any provisional emissions numbers that are
attributable to potential greenhouse gas emissions embodied
in an amount of eligible upstream fuel.
1.85 This information is published at the entity level and not at facility
level. [Schedule 1, Part 2, items 181A-185]
1.86 Persons that are required to report under sections 22A, 22C, 22D
and 22E of the NGER Act may apply to the Authority to request that
information not be publish if that information reveals, or is capable of
revealing trade secrets or any other matter that has commercial value that
would be or could be reasonably diminished if the information were
disclosed about a specific facility, technology or corporate initiative relating
to the corporation or the person. [Schedule 1, Part 2, items 186-187]
Penalties
1.87 Penalties for provisions in the NGER Act that relate to Scheme
obligations and liability have been clarified where relevant and increased to
align them with penalties under the main bill. [Schedule 1, Part 2, items 193A-
193B]
1.88 Scheme entities will be subject to penalties, including for
continuing contraventions if they fail to comply with reporting requirements
or if they fail to comply with external audit provisions. [Schedule 1, Part 2,
items 187A- 188AB]
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Other general amendments
Record keeping requirements
1.89 Record keeping requirements in the NGER Act require all
reporting entities and other relevant persons to retain records for five years,
in line with standard taxation record keeping. [Schedule 1, Part 2, item 179-181]
Object of the National Greenhouse and Energy Reporting Act 2007
1.90 The objects of the NGER Act are amended to reflect the
interaction between the NGER Act and the Scheme. The second object of
the NGER Act is to underpin the Carbon Pollution Reduction Scheme Act
2010 by imposing various registration, reporting and record-keeping
requirements. These requirements, as outlined above, apply to Scheme
entities. [Schedule 1, Part 2, items 98-101]
Constitutional basis for the National Greenhouse and Energy Reporting
Act 2007
1.91 Where the NGER Act underpins the Carbon Pollution Reduction
Scheme Act 2010 the former relies on the same legislative powers as the
latter. [Schedule 1, Part 2, items 102-104]
Extension and limitation with regard to exclusion of some State and
Territory laws
1.92 Section 5 of the NGER Act provides for the exclusion of specific
State or Territory laws (or a part thereof) that apply persons if that law
provides for the reporting or disclosure of information relating to
greenhouse gas emissions, greenhouse gas projects, energy consumption or
energy production and is listed in the regulations as a law, or part of a law,
to which the section applies. An exemption to the application of this
provision in relation to laws providing for the report or disclosure of
information related to greenhouse gas emissions is made for local
governing bodies and statutory authorities of a State or Territory within the
meaning of the Carbon Pollution Reduction Scheme Act 2010. This
limitation recognises that the Commonwealth does not wish to limit State
and Territory laws (or a part thereof) from requiring reporting and
disclosure of information related to greenhouse gas emissions by these
entities to the States and Territories.
1.93 The purpose of section 5 is to support the streamlining of
greenhouse and energy reporting by enabling corporations to meet the
reporting requirements of multiple programmes through a single
framework, created under the NGER Act.
1.94 No regulations have been made under this section to date and the
Government is continuing to work cooperatively with State and Territory
governments to transition towards a single reporting system across all
jurisdictions. [Schedule 1, Part 2, items 105-107]
24
Chapter 1 - Amendments to the National Greenhouse and Energy Reporting Act 2007
Crown to be bound
1.95 In line with usual practice, while the Crown is bound by the
NGER Act, the Crown is not subject to a pecuniary or criminal penalty.
[Schedule 1, Part 2, item 108] This protection does not apply to an authority of
the Crown.
Territorial boundary
1.96 The application and extensions of the NGER Act is the same as
those of the Carbon Pollution reduction Scheme Act 2010, [Schedule 1, Part
2, item 109] [Schedule 1, Part 2, item 124] [Schedule 1, Part 2, item 145]
1.97 Executive officers of bodies corporate are liable under the NGER
Act in line with Carbon Pollution Reduction Scheme Act 2010. [Schedule 1,
Part 2, item 118] [Schedule 1, Part 2, items 188AC-188A]
Decisions that are reviewable by the Administrative Appeals Tribunal
(AAT)
1.98 Decisions by the Authority not to register and not to deregister a
person are reviewable by the Administrative Appeals Tribunal. [Schedule 1,
Part 2, items 191A-191B]
25
Chapter 2
Taxation of emissions units
Outline of Chapter
2.1 Schedule 2 to the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010 amends the Income Tax Assessment
Act 1997 (ITAA 1997), the Income Tax Assessment Act 1936 (ITAA 1936)
and the Taxation Administration Act 1953 (TAA 1953) to establish a rolling
balance treatment of registered emissions units for income tax with the
following main features:
� the cost of a unit is deductible, with the effect of the
deduction being deferred through the rolling balance (in the
standard case where banked units are valued at cost) until the
sale or surrender of the unit
� the proceeds of selling a unit are assessable income
� any difference in the value of units held at the beginning of
an income year and at the end of that year is reflected in
taxable income, with:
- any increase in value included in assessable income
- any decrease in value allowed as a deduction
� taxpayers can elect to value all units held at the end of the
first income year they hold units at either cost or market
value
� the choice of valuation method continues to apply but, as a
transitional measure, can be changed once at any time before
the 2016-17 income year after which a change will only be
allowed after a method has been used for four years
� where an entity surrenders a unit for a purpose unrelated to
producing assessable income, the deduction for the cost is
effectively reversed by including in assessable income an
amount equal to the amount deducted for its acquisition.
2.2 Schedule 2 also amends the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to characterise a supply of an eligible
emissions unit or a Kyoto unit specifically as a supply of a personal
property right(s) and not a supply of or directly connected with real
property. Legislative references in this chapter are to the ITAA 1997,
except where indicated.
27
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Context
Summary of how existing law would have applied
2.3 When the Carbon Pollution Reduction Scheme (the Scheme)
commences, the proposed tax amendments apply immediately to set out the
income tax treatment, and clarify the goods and services tax (GST)
treatment, of Australian emissions units and certain other emissions units.
The summary below outlines how the existing law would have applied to
these emissions units, if the proposed tax amendments were not enacted.
Income tax
2.4 For a taxpayer carrying on a business or undertaking other
assessable income earning activities, the existing income tax law would
recognise the cost of acquiring units. The particular treatment and
provisions that would apply in any particular case would depend on the
taxpayer's activities and its purpose, both when purchasing the unit and
while holding the unit. The Government's Green Paper discussed how the
existing law would apply to an entity purchasing a unit for the following
purposes:
� to meet an obligation under the Australian scheme
� to surrender voluntarily as part of a marketing campaign
� as part of its trading portfolio
� otherwise for sale at a profit.
2.5 The Green Paper explained that in the first two cases the cost may
be deductible but the timing of the deduction would be unclear. In the third
case, where units were bought for trading, the cost would generally be
deductible on acquisition but any change over an income year in the value
of units held would be brought to account as a deduction (where the value
declined) or assessable income (where the value increased). In all three
cases, any proceeds on the sale of the unit would be assessable income.
2.6 In the fourth case, where the cost would not be deductible or the
proceeds assessable, both would be taken into account in working out any
assessable gain or deductible loss on the sale of a unit. In all cases, it would
be very unlikely that a capital gain or loss would be recognised under the
capital gains (CGT) or losses provisions.
2.7 A unit acquired for private or domestic purposes (for example, to
be surrendered voluntarily to offset the carbon footprint of the purchaser's
private residence) would not be deductible under the current tax law.
Goods and services tax
2.8 The supply of an eligible emissions unit or a Kyoto unit is a
taxable supply if the requirements of section 9-5 of the GST Act are met.
28
Chapter 2 - Taxation of emissions units
2.9 GST applies to an eligible emissions unit or a Kyoto unit acquired
from an entity outside Australia if the supply is connected with Australia
and the other requirements of a taxable supply are met. If the supply of an
eligible emissions unit or a Kyoto unit to a GST registered recipient
carrying on an enterprise in Australia is not connected with Australia and
the unit is acquired by the recipient solely for a creditable purpose, GST
does not apply.
2.10 The supply of an eligible emissions unit or a Kyoto unit to an
entity outside Australia may be GST-free under an item in the table in
subsection 38-190(1) of the GST Act if it is a supply other than of goods or
real property. To satisfy certain items in the table, it is a requirement that
the supply of the eligible emissions unit or Kyoto unit is not a supply
directly connected with real property. Additionally, to satisfy item 4 of the
table in subsection 38-190(1) of the GST Act, it must be the supply of a
right.
The Government's Green and White papers
Objectives of the tax treatment of units
2.11 The Green and White papers explained that the tax treatment of
units aims to:
� ensure the scheme's main aim of cost effectively meeting
Australia's emissions reduction targets and contributing to
the development of an effective global response to climate
change is not compromised
� incorporate the tax axioms of simplicity, efficiency and
equity.
Income tax
2.12 To prevent complexities and uncertainties that would result from
applying the existing income tax law to emissions units, the Government's
preferred position in the Green Paper was to develop discrete income tax
provisions for units. Those provisions would establish a rolling balance
treatment, similar to the trading stock provisions, under which:
� the cost of a unit would be deductible when the unit is
acquired
� the proceeds from selling a unit would be assessable income
� any difference in the value of units held at the beginning of
an income year and at the end of that year would be reflected
in taxable income, with any increase in value included as
assessable income and any decrease in value allowed as a
deduction.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
2.13 The White Paper set out the Government's decision that the
rolling balance treatment should apply to units and further details as to how
the rolling balance would operate.
Goods and services tax
2.14 The Government's preferred position in the Green Paper was that
normal GST rules would apply to scheme transactions. This would ensure
that scheme transactions would receive the same treatment as similar
transactions in the broader economy. It would be consistent with the
underlying principles of the GST, including its broad-based nature, while
also minimising compliance costs and avoiding complexity in the law. The
treatment of eligible emissions units or Kyoto units under the normal rules
would generally not lead to embedded GST for GST registered entities.
2.15 The White Paper stated that the normal GST rules would apply to
scheme transactions. The White Paper also stated that to promote certainty,
the Government would amend the GST law to characterise eligible
emissions units and Kyoto units as personal property rights and that the
units would not be real property for the purposes of the GST Act.
Summary of new law
2.16 Schedule 2 of the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010 establishes the income tax
treatment, and clarifies the GST treatment, of emissions units.
Income tax
2.17 As proposed in the Green and White papers, the bill introduces
discrete provisions that establish a rolling balance method of accounting for
registered emissions units, similar to that for trading stock. The main
features are:
� the cost of a unit is deductible, with the effect of the
deduction being deferred through the rolling balance (in the
default case where banked units are valued at cost) until its
sale or surrender
� the proceeds of selling a unit are assessable income
� any difference in the value of units held by a taxpayer at the
beginning of an income year and at the end of that year are
reflected in taxable income, with:
- any increase in value included in assessable income
- any decrease in value allowed as a deduction
30
Chapter 2 - Taxation of emissions units
� a taxpayer can elect to value all units held at the end of an
income year at cost, using the `first-in, first-out' (FIFO) cost
method or the actual cost method, or at market value
� a taxpayer's choice of valuation method continues to apply;
however, a taxpayer will be able to change valuation methods
once at any time during a transitional period of five years
from the scheme's commencement, after which a change in
valuation methods will only be allowed after a method has
been used for at least the previous 4 years that units were
held at the end of the income year
� free Australian emissions units held at the end of an income
year are generally taken to have a cost equal to their market
value at the date of issue
� where an entity surrenders a unit for a purpose unrelated to
producing assessable income, the deduction for the cost of
the unit is effectively reversed by including in assessable
income an amount equal to the amount deducted.
Goods and services tax
2.18 The supply of an eligible emissions unit or a Kyoto unit is the
supply of a personal property right(s). An eligible emissions unit or a Kyoto
unit is excluded from the definition of real property in the GST Act.
Further, the supply of an eligible emissions unit or a Kyoto unit is taken not
to be a supply directly connected with real property for the purposes of the
table in subsection 38-190(1) of the GST Act.
Detailed explanation of new law
Income tax
2.19 The income tax treatment of emissions units under the Carbon
Pollution Reduction Scheme centres on the holding of units on the National
Registry of Emissions Units (the National Registry). The treatment of
emissions units can be divided into what happens to an entity's holding of
units on the National Registry when the entity:
� becomes the holder of a registered emissions unit during an
income year
� holds a registered emissions unit at the end of an income year
� ceases to hold a registered emissions unit during an income
year by:
31
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
- surrendering it, in which case the unit is removed from the
National Registry (section 129 of the Carbon Pollution
Reduction Scheme Bill 2010 (the main bill)
- transferring the unit to a registered account held by
another entity on the National Registry (for example,
under sections 94 and 95 of the main bill) or to another
entity's foreign account
- transferring the unit to the entity's own foreign account,
or the foreign account of its nominee upon which it ceases
to be a registered emissions unit (sections 109 and 120 of
the main bill)
- relinquishing it, in which case the unit is cancelled or
transferred to the Commonwealth (section 286 of the main
bill).
Meaning of registered emissions unit
2.20 Registered emissions unit is a defined term that is intended to
cover those units that are actually registered on the National Registry. An
emissions unit is a registered emissions unit if:
� it is an eligible emissions unit or a Kyoto unit; and
� there is an entry in a National Registry account for the unit.
[Schedule 2, item 19, section 420- 10 and item 46, definition registered
emissions unit, subsection 995-1(1)]
2.21 The terms `eligible emissions unit', `Kyoto unit' and `Registry
account' all have the same meanings as in the main bill. An eligible
emissions unit is one that an entity can surrender to prevent a unit shortfall.
Some types of Kyoto units (assigned amount units and certified emission
reductions derived from afforestation or reforestation projects) cannot be
surrendered to prevent a unit shortfall but nevertheless they can be
registered on the National Registry.
Holding a registered emissions unit
2.22 For income tax, an entity ordinarily holds a registered emissions
unit if it is the registered holder of the unit within the meaning of the main
bill. Registered holder of an Australian emissions unit, Kyoto unit or a non-
Kyoto international emissions unit is defined in section 5 of the main bill as
the person in whose Registry account there is an entry for the unit. [Schedule
2, item 19, section 420-12]
Registered emissions units held by a person as a nominee
2.23 There is a specific `look-through' rule that clarifies the income
tax treatment where the registered holder of a registered emissions unit is
merely a nominee for another entity. The other entity is treated as holding
32
Chapter 2 - Taxation of emissions units
the unit and the registered holder is treated as not holding the unit. [Schedule
2, item 19, subsection 420-12(2)]
2.24 Nominee has its ordinary meaning in the ITAA 1997, which in
this context is someone who holds bare legal title for the benefit of another
(Black's Law Dictionary, 8th edition). A bare trustee is an example of a
nominee but the concept of nominee may be broader. A bare trustee in this
sense is one who merely holds property on trust with no interest in it or duty
as to the trust property, except to convey it when required according to the
direction of the beneficial owner (Osborn's Concise Law Dictionary, 7th
Edition).
2.25 While the entity that is taken to hold the registered emissions unit
under the `look-through' rule can themselves be holding the unit as
nominee, the provision only operates to 'look-through' the registered holder
of the unit
Example 2.1
Z is a stock broker who acquires and holds 50,000 Australian
emissions units in a National Registry account. Z acquired and holds
those units on behalf of its client, Company B.
The `look-through' rule applies for income tax because Z holds the
units as nominee for Company B. Company B is treated as holding the
50,000 Australian emissions units, which are registered emissions
units, and Z is treated as not holding those units.
Example 2.2
A holds 10,000 Australian emissions units in a National Registry
account. A is the managing partner of a partnership, which carries on a
business of trading in emissions units and other personal property.
A acquired and holds the units on behalf of all the partners.
The `look-through' rule applies for income tax because A holds the
units as nominee for the partnership. The partnership is treated as
holding the 10,000 Australian emissions units, which are registered
emissions units, and A is treated as not holding those units (except as a
member of the partnership).
Example 2.3
T is the trustee of a discretionary trust. Acting as trustee, T acquires
and holds 10,000 Australian emissions units in a National Registry
account.
The `look-through' rule for nominees does not apply because T is not a
mere nominee. The units are held by the trust for income tax purposes.
Under the main bill, Australian emissions units are held in a National
Registry account kept by a person. Person is defined to include a trust,
which in turn is defined to mean a person in the capacity as trustee or,
as the case requires, a trust estate. Both meanings of trust under the
main bill are consistent with treating the unit as held by the trust for the
purpose of working out income tax liabilities.
33
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Example 2.4
Z is a stock broker as in Example 2.1. Z acquires and holds 50,000
Australian emissions units in a National Registry account. Z acquired
and holds those units on behalf of its client, A.
A is the managing partner of a partnership as in example 2.2. A holds
its interest in the units as trustee for the partners in the partnership.
The 'look-through' rule applies for income tax so that Z is not the
holder for income tax purposes, as Z holds only as a nominee for A.
The 'look-through' rule does not apply to make the partnership the
holder for income tax purposes even though A holds the units
as nominee for the partnership, as A is not the registered holder of the
unit. The trust (A as trustee for the partners) is treated as holding the
50,000 Australian emissions units, which are registered emissions
units.
Becoming the holder of a registered emissions unit
2.26 An entity becomes the holder of a registered emissions unit during
an income year by:
� purchasing a registered emissions unit:
- at an original auction conducted by the Authority for the
Commonwealth (section 99 of the main bill)
- on the secondary market, including at a secondary market
auction (section 101 of the main bill)
- as part of the fixed price cap arrangement (section 89 of
the main bill)
� transmission of the registered emissions unit by operation of
law (section 97 of the main bill)
� being issued a free registered emissions unit by reason of:
- passing an emissions-intensive trade-exposed activities
eligibility test (Part 8 of the main bill)
- transitional assistance in respect of coal mining that has
significant fugitive emissions of greenhouse gases (Part
8A of the main bill)
- being a coal-fired electricity generator (Part 9 of the main
bill)
� being issued a free registered emissions unit by reason of
certain activities undertaken by the entity:
- sequestering carbon in a Kyoto compliant forest (Part 10
of the main bill
- destroying synthetic greenhouse gases (Part 11 of the
main bill)
34
Chapter 2 - Taxation of emissions units
- under an eligible domestic offsets project (Part 11A of the
main bill)
� transferring an international emissions unit from a foreign
account onto the National Registry (section 110 or
section 121 of the main bill).
Deductions for expenditure in obtaining a unit
2.27 An entity can deduct expenditure to the extent that the entity
incurs it in becoming the holder of a registered emissions unit. The
expenditure is deductible in the year the entity starts to hold the unit,
ensuring that the timing of the deduction is matched to the income year in
which the unit enters the entity's rolling balance account. [Schedule 2, item 19,
section 420- 15].
2.28 However, there are exceptions. Expenditure incurred in becoming
the holder is not deductible under the proposed provisions in Division 420
if the registered emissions unit is issued in accordance with:
� the EITE assistance program [Schedule 2, item 19, paragraph
420- 15(3)(a)]
� assistance in respect of coal mining that has significant
fugitive emissions of greenhouse gases [Schedule 2, item 19,
paragraph 420- 15(3)(aa)]
� coal-fired electricity generation assistance [Schedule 2, item 19,
paragraph 420- 15(3)(b)]
� carbon sequestration by reforestation (other than expenditure
in preparing or lodging an application for a certificate of
reforestation, or a reforestation report) [Schedule 2, item 19,
subsection 420- 15(4)]
� the destruction of synthetic greenhouse gases (other than
expenditure in preparing or lodging an application for a
certificate of eligible synthetic greenhouse gas destruction)
[Schedule 2, item 19, subsection 420- 15(5)]
� the domestic offsets program [Schedule 2, item 19, subsection
420- 15(5A)].
2.29 Expenditure excluded from deduction under Division 420 may
nevertheless be deductible under other provisions of the income tax law.
Where an entity is undertaking forestry sequestration, the destruction of
synthetic greenhouse gases or a domestic offsets program, the normal
deduction provisions apply to work out the deductibility of the expenses
they incur in those activities. The activities are effectively regarded as
directed towards producing trees or destroying synthetic greenhouse gases
(and any assessable income flowing from those activities), rather than
towards producing units. If Division 420 were applied in these cases,
35
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
various deductions would potentially be deferred until the units produced
started to be held. [Schedule 2, item 19, subsections 420- 15(4) and (5)]
2.30 Expenditure incurred in preparing or lodging a reforestation
report, an application for a certificate of reforestation, an application for a
certificate of eligible greenhouse gas destruction or an application for free
units under the domestic offsets program, can be deducted under
Division 420 (where the relevant conditions are satisfied). That expenditure
is directly related to the production of Australian emissions units and so is
deductible as expenditure in becoming the holder of the registered
emissions units. [Schedule 2, item 19, subsections 420- 15(4), (5) and (5A)]
Example 2.5
A registered reforestation entity engages an expert to assist in
submitting a reforestation report and applying for a certificate of
reforestation. The expert recommended purchase of a specialised
computer program for preparation of such reports and the entity made
the purchase of this software. The amount paid to the expert so far as
this is for preparation of the reforestation report and of the application
for a certificate of reforestation is deductible under subsection
420-15(4). The amount paid for the software so far as this is acquired
for preparation of such reports is also deductible under this subsection.
2.31 Expenditure incurred in becoming the holder of a registered
emissions unit (including under a deemed acquisition) is also not deductible
where, if the unit were sold immediately after the taxpayer began to hold it,
the proceeds would not be assessable income. This is primarily designed to
prevent foreign residents who are not assessable on the proceeds of sale of
units from obtaining a deduction which could be offset against other
Australian assessable income. For a more detailed discussion of the
treatment of foreign residents see below under 'Foreign residents - whether
they are taxable in relation to registered emissions units'. [Schedule 2, item 19,
subsection 420-15(6)]
Non-arm's length transactions and transactions with associates
2.32 If the consideration provided in a non-arm's length transaction or
in a transaction between associates by which an entity became the holder of
a registered emissions unit is not equal to the market value of the unit, the
consideration is instead taken to have that market value. That is, market
value consideration is taken to have been incurred whether the actual
consideration was less than, or greater than, the market value of the unit or
if there was no consideration paid or given. [Schedule 2, item 19, subsection 420-
20(1)]
2.33 There are a number of carve outs from this general principle. The
principle does not apply to the issue of Australian emissions units under the
CPRS. Australian emissions units issued via auctions will by their nature be
issued at the market value and so do not need to be covered by the
principle. The treatment of recipients of free Australian emissions units is
36
Chapter 2 - Taxation of emissions units
specifically dealt with elsewhere in the Division. The recipients are not
taken to have provided any consideration. The other broad category of
Australian emissions units that are issued are the created units that arise
from the sequestration of carbon in Kyoto-compliant forests or the
destruction of synthetic greenhouse gases. [Schedule 2, item 19, subsection
420-20(3)]
2.34 Another category of transaction that is carved out from the non-
arm's length transactions and transactions with associates principle is the
transmission of emissions units arising from the death of individuals who
held them just before their death, whether to a legal personal representative
or to a beneficiary in the individual's estate. [Schedule 2, item 19, subsection 420-
20(2)]
Relationship with international transfer pricing provisions
2.35 Section 136AB of the ITAA 1936 is amended to clarify the
relationship between the proposed non-arm's length transaction sections
(sections 420-20 and 420-30) and the international transfer pricing
provisions in Division 13 of Part III of the ITAA 1936. If both or either
section 420-20 or section 420-30 and Division 13 could otherwise apply,
the potential operation of section 420-20 and/or section 420-30 is to be
disregarded. This leaves Division 13 to apply comprehensively in the
international area, subject to the terms of any relevant double tax treaty.
[Schedule 2, item 7, subsection 136AB(2) of the ITAA 1936]
2.36 The result is that the relationship of sections 420-20 and 420-30
with Division 13 is the same as that of section 70-20, the non-arm's length
rule for trading stock.
Transfer of an international emissions unit from a foreign registry to the
Australian National Registry
2.37 An entity may transfer an international emissions unit from a
foreign registry to its account on the Australian National Registry. The
process for this is set out in Part 4 of the main bill and it is commonly called
importing an emissions unit. The importing rules also cover the following
cases where both before and after importation the same entity holds the
unit, either in an account in its own name or because another entity holds
the unit as its nominee:
� an entity transferring an international emissions unit from its
account on a foreign registry to its or its nominee's account
on the Australian National Registry; and
� an entity's nominee transferring an international emissions
unit from its account on a foreign registry to the entity's
account or its nominee's account, on the Australian National
Registry. [Schedule 2, item 19, section 420-21]
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
2.38 An international emissions unit is defined in the Dictionary to the
ITAA 1997 to mean a Kyoto unit or non-Kyoto international emissions
unit, both of which have the same meaning as they have in the main bill.
[Schedule 2, item 45, definition international emissions unit subsection 995-1(1)]
2.39 Division 420 provides specific rules for registered emissions units
once they become registered on the National Registry. The general income
tax provisions apply to international emissions units until the time the units
are registered on the National Registry and become subject to Division 420
treatment (that is, when they are transferred from your foreign account).
The treatment of the importation of an international emission unit depends
on how the unit is treated under the income tax law before importation - in
particular, on whether it was held on revenue or capital account.
2.40 Before they become registered emissions units in Australia, the
international emissions units would generally be dealt with on revenue
account (the cost and proceeds would be directly deductible and assessable
or taken into account in working out assessable profits or deductible losses
- see Green Paper at 11.3). The test of whether an asset is held on revenue
account is expressed as whether, just before the transfer, the unit was
trading stock or a revenue asset of the entity. Trading stock and revenue
assets are both defined terms in the existing law. [Schedule 2, item 19, section
420-21]
2.41 Where the importing entity held the emissions unit on revenue
account before importation, the entity is treated as having sold the unit to
someone else for its cost just before it became a registered emissions unit.
The entity is also treated as having immediately bought it back as a
registered emissions unit for the same amount (the former cost). [Schedule 2,
item 19, subsection 420-21(2)]
Example 2.6
An Australian resident company carries on a large manufacturing
business in Australia and in the ordinary course of that business
acquires, sells and surrenders emissions units. The company holds
100,000 emission reduction units (a type of international emissions
unit) that are registered in New Zealand. The company then transfers
all those emission reduction units from the New Zealand Register to its
Australian National Registry account and immediately after that
surrenders them to acquit an Australian emissions liability.
Before the transfer the units were trading stock or revenue assets of the
company. The company is treated as having sold each unit to someone
else at its cost just before it became a registered emissions unit in
Australia. The treatment under the general income tax law of the
proceeds of selling emission units is discussed in detail in the Green
Paper at 11.3 and is summarised above.
The company is also treated as having bought 100,000 registered
emissions units for the same amount. The company is entitled to a
deduction for that amount (section 420-15).
38
Chapter 2 - Taxation of emissions units
2.42 It is expected to be unusual for an importing entity to hold an
international emissions unit on capital account before importation. If this
happens, the emissions unit is brought into Division 420 at its market value.
A 'roll-over' treatment would be inappropriate because it would result in
capital gains or losses being rolled over onto revenue account. Capital gains
and losses are treated differently from revenue gains and losses under the
income tax law. [Schedule 2, item 19, section 420-21]
2.43 Here, the importing entity is treated as if it sold the international
emissions unit for market value to someone else, and repurchased it for the
same amount, just before it was entered on the National Registry. This
ensures that any gain or loss that accrued before the unit was registered is
brought to account under the provisions that applied before registration and
any gain or loss while the unit is registered is treated under Division 420.
[Schedule 2, item 19, subsection 420-21(1)]
2.44 The capital gains and losses provisions are also amended because
the capital gains tax (CGT) events generally do not rely on deemed sales or
disposals. When a taxpayer starts to hold as a registered emissions unit, an
international emissions unit they already held as neither trading stock nor a
revenue asset, a CGT event happens. This is done by inserting a new CGT
event K1, which expressly provides that the entity can make a capital gain
or capital loss when they start to hold an international emissions unit as a
registered emissions unit. The unit must, just before importation, be neither
trading stock nor a revenue asset of the entity. [Schedule 2, items 14 and 15,
sections 104-5, table item relating to CGT event K1, and 104-205]
2.45 Where an emissions unit transferred to the National Registry was
held as trading stock just before the transfer, the Division 420 rules apply
rather than the trading stock rules that deal with a taxpayer ceasing to hold
an item as trading stock but still owning it. [Schedule 2, items 12 and 13,
subsection 70-110(2)]
Ceasing to hold a registered emissions unit
2.46 An entity ceases to hold a registered emissions unit during an
income year by:
� transferring it to either another account holder on the
National Registry (for example, under paragraph 95(a) of the
main bill) or to another account holder on the Registry of
another country (for example, under paragraph 109(1)(c) of
the main bill)
� surrendering it to the Authority, upon which the registration
is cancelled or the unit is removed from the entity's National
Registry account (under section 129 of the main bill)
� transferring it from their account on the National Registry to
their account on the Registry of another country (for
example, under paragraph 109(1)(d) of the main bill)
39
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
� relinquishing it, in which case the unit is cancelled or
transferred to the Commonwealth relinquished units account
(under section 286 of the main bill).
2.47 An entity's assessable income includes an amount the entity is
entitled to receive because they disposed of a registered emissions unit. The
amount is assessable income in the income year they cease to hold the unit,
ensuring that the timing of assessability is matched to the income year in
which the unit leaves the entity's rolling balance account. That amount is
also taken to have a source in Australia. [Schedule 2, item 19, section 420-25]
Non-arm's length transactions and transactions with associates
2.48 If the consideration receivable in a non-arm's length transaction
or in a transaction between associates by which an entity ceases to be the
holder of a registered emissions unit, is not equal to the market value of the
unit, the consideration is instead taken to have that market value. That is,
market value consideration is taken to have been receivable by the entity
that ceases to hold the unit whether the actual consideration was less than,
or greater than, the market value of the unit or if there was no consideration
paid or given. [Schedule 2, item 19, section 420-30]
Transfer of an international emissions unit from the National Registry to a
foreign registry
2.49 An entity, or its nominee, may transfer an international emissions
unit from the National Registry to the entity's own account or its nominee's
account on a foreign registry. The process for this is set out in Part 4 of the
main bill and is commonly called exporting an emissions unit.
2.50 The income tax treatment under Division 420 ceases when the
emissions unit ceases to be registered in Australia on the National Registry.
The unit thus ceases to be held as a registered emissions unit. After that, the
emissions unit is treated under the general income tax law. Similarly to the
importation of a unit, the termination of the Division 420 treatment and the
commencement of the new treatment are both based on market value at de-
registration. Any gain or loss while the unit is registered in Australia is
treated under Division 420. Any gain or loss after Australian registration on
the National Registry ceases is brought to account under the general
provisions of the income tax law.
2.51 To achieve this result for income tax, the entity that transfers the
unit is treated as having sold the unit to someone else for its market value
just before it ceased to be a registered emissions unit. The entity is also
treated as having immediately bought it back as an emissions unit that is not
a registered emissions unit in Australia for the same amount. [Schedule 2, item
19, section 420-35]
2.52 Where the entity that transfers a registered emissions unit from the
Australian Registry to its account on a foreign registry holds the unit as
40
Chapter 2 - Taxation of emissions units
trading stock just after the transfer, the Division 420 rules apply rather than
the trading stock rules that deal with a taxpayer starting to hold as trading
stock an item they already own. [Schedule 2, item 11, subsection 70-30(6)]
Example 2.7
An Australian resident company carries on a business of trading in
emissions units. The company owns 10,000 emission reduction units (a
type of an international emissions unit) that are registered in Australia.
5,000 of those units are transferred from the Australian National
Registry to its foreign account on the New Zealand Register.
The company is treated as having sold each unit to someone else at its
market value just before it stopped holding the unit as a registered
emissions unit. As the unit was a registered emissions unit, the market
value is included in the company's assessable income (section 420-25).
The company is also treated as having bought 5,000 emission
reduction units for the same amount. The company may be able to
deduct that amount under section 8-1 and, assuming the units became
trading stock of the company, normally would be able to do so (subject
to other special provisions that might deny a deduction).
2.53 The proposed treatment applies across the income tax law -- it is
not just for the purposes of Division 420. After an international emissions
unit ceases to be a registered emissions unit in Australia, it would normally
be dealt with on revenue account (the cost and proceeds would be directly
deductible and assessable or taken into account in working out assessable
profits or deductible losses -- see Green Paper at 11.3). However, if it were
not a revenue asset in a particular case, a capital gain or loss on its eventual
disposal would be brought to account.
2.54 The deemed acquisition of the emissions unit is an acquisition of a
CGT asset for the capital gains and losses provisions. The capital gains and
losses provisions are amended to clarify how to work out the cost base of a
unit that is deemed to be acquired. The first element of the cost base (what
the taxpayer paid for the unit) is the market value just before the unit
stopped being a registered emissions unit. [Schedule 2, item 16, section 112-97]
Disposal for a purpose other than gaining assessable income
2.55 Where an entity ceases to hold a registered emissions unit and that
cessation is unrelated to gaining assessable income, there is a claw-back of
any amount that the entity has deducted or can deduct for expenditure
incurred in acquiring or disposing of the unit. [Schedule 2, item 19, subsection
420-40(1)]
2.56 This claw-back provision tests for a purpose unrelated to
producing assessable income (for example, a private or domestic purpose)
at the time of disposal of a unit, rather than at acquisition. The proposed
approach has been adopted because of the evidentiary difficulty of
determining the purpose of acquiring a unit (and seeking instead to test
41
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
deductibility of expenditure incurred in becoming the holder of the unit at
that time) and because it avoids complexities where a purpose changes
before disposal. [Schedule 2, item 19, subsection 420-40(1)]
2.57 The test of a purpose unrelated to producing assessable income is
based on the general deduction provision, section 8-1. It is whether the
cessation is neither:
� in gaining or producing an entity's assessable income
nor
� in carrying on a business for the purpose of gaining or
producing assessable income. [Schedule 2, item 19,
subsection 420-40(1)]
2.58 The wording of this test is not identical to the corresponding
words in section 8-1. In particular, the second limb of the test differs from
the second positive limb of section 8-1 in that it does not contain the word
'necessarily'. This minor difference flows from the context of the words and
is not intended to result in any material difference in meaning. The courts
have interpreted 'necessarily' in section 8-1 to mean no more than 'clearly
appropriate or adapted for'.
2.59 A business entity that surrenders units (beyond any potential
emissions liability) for promotional or marketing purposes would not satisfy
this test and the claw-back provision would not apply. In contrast, an
individual who surrenders units to offset the carbon footprint of their
private residence would satisfy the test and the clawback would apply
(assuming other conditions were met). [Schedule 2, item 19, subsection 420-40(1)]
2.60 The claw-back operates by including in assessable income, for the
income year in which the cessation occurred, an amount equal to the
amount that the entity can deduct or has deducted. This claw-back method
is used rather than denying the original deduction because it avoids the
compliance and administration costs of re-opening assessments for previous
income years. The amount included under the claw-back method is taken to
have a source in Australia. [Schedule 2, item 19, subsections 420-40(1) and (6 )]
2.61 If the entity ceases to hold the unit as a result of a non-arm's
length transaction to which section 420-30 applies, section 420-30 applies
instead of the claw-back provision. [Schedule 2, item 19, subsection 420-40(1)]
2.62 Where the cessation is because of the death of an individual and
the unit passes to the deceased's legal personal representative or (directly or
indirectly) to a beneficiary of the deceased's estate, there is essentially a
"roll-over" treatment. The acquirer is treated as acquiring the unit for the
amount included in the transferor's assessable income under the claw-back
provision, which is equal to any amounts deducted or deductible for
expenditure incurred in acquiring it (basically its cost). A legal personal
representative who passes the unit to a beneficiary is also treated as
42
Chapter 2 - Taxation of emissions units
disposing of the unit for the same amount. [Schedule 2, item 19, subsections
420-40(2) and (3)]
2.63 Where the cessation is for a purpose unrelated to producing
assessable income and is not because of death, the acquirer is also treated as
acquiring the unit for the amount included in the transferor's assessable
income under the claw-back provision. In this case, the transferor must
notify the transferee that, because this rule applies, the acquirer is treated as
purchasing the unit for consideration and the amount of that consideration.
Failure to notify the acquirer at, or as soon as practicable after, the time of
transfer is an offence under section 8C of the TAA 1953. [Schedule 2, item 19,
subsections 420-40(4) and (5)]
Expenditure incurred in ceasing to hold a registered emissions unit
2.64 An entity can deduct expenditure to the extent that the entity
incurs it in ceasing to hold a registered emissions unit. The expenditure is
deductible in the year the entity ceases to hold the unit, ensuring that the
timing of the deduction is matched to the income year in which the unit
leaves the entity's rolling balance account. [Schedule 2, item 19, section 420-42]
2.65 This expenditure (for example, transaction costs incurred in
disposing of units) would otherwise have been deductible under the general
deduction provision, section 8-1. A specific rule has been included because
Division 420 is intended to cover most (but not all) issues about acquiring,
holding and disposing of registered emissions units.
Accounting for registered emissions units held at the start or end of the
income year
2.66 A key feature of the rolling balance treatment is that a taxpayer
must bring to account any difference between the value of the registered
emissions units they held at the start and the value of the registered
emissions units they held at the end of the income year. [Schedule 2, item 19,
subsection 420-45(1)]
2.67 Any excess of the value at the end of the income year over the
value at the start of the income year is included in the taxpayer's assessable
income. [Schedule 2, item 19, subsection 420-45(2)]
2.68 Any excess of the value at the start of the income year over the
value at the end of the income year is deductible. [Schedule 2, item 19,
subsection 420-45(3)]
2.69 The effect of this tax accounting is that:
� the value of a taxpayer's registered emissions units held at
the end of an income year increases their taxable income
� the taxpayer's taxable income for the next income year is
reduced by the same value.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Value of registered emission units at the start of the income year
2.70 The value of a registered emissions unit held by a taxpayer at the
start of an income year is defined to be the same amount at which it was
taken into account under the registered emissions provisions at the end of
the last income year. If the unit was not taken into account under this
Subdivision at the end of the last income year (for example, due to an error
by the taxpayer in completing their income tax return that can no longer be
corrected) the value of the unit is a nil amount. [Schedule 2, item 19, section 420-
50]
Value of registered emissions units at the end of the income year
2.71 A taxpayer has a choice between three methods:
� the FIFO cost method,
� the actual cost method
� the market value method
in valuing the registered emissions units it holds at the end of an
income year. The taxpayer makes the choice for the first income year
where it holds registered emissions units at the end of the income
year. This choice allows taxpayers to select the method that best suits
their business practices. [Schedule 2, item 19, section 420-51, subsections 420-
55(1) and (2) and 420-57(1) and (2)]
2.72 A choice must be made before a taxpayer lodges their income tax
return for the income year for which they can make a choice. The choice is
made by applying the chosen method in the income tax return that is
lodged. A choice is irrevocable for the income year for which it is made.
[Schedule 2, item 19, subsections 420-55(4) and (5) and 420-57(7) and (8)]
2.73 If the taxpayer fails to make a choice the default valuation method
is the FIFO cost method. Default choice rules like this are commonly
included in the income tax law to prevent a possible problem in assessing a
taxpayer that fails to make a choice. Under either the FIFO cost or actual
cost methods, unrealised gains on units still on hand are not assessed and
unrealised losses are not deducted. [Schedule 2, item 19, subsection 420-55(3)]
2.74 A taxpayer's choice continues to apply for later income years.
However, a taxpayer will be able to change their choice of valuation
method once at any time during a transitional period ending with the 2015-
16 income year. This will give taxpayers the opportunity to consider
changing valuation methods in the period after the first Kyoto Protocol
commitment period ends in 2012, should circumstances change. If a
taxpayer changes methods it must value any units it holds at the end of a
later income year according to the same method. [Schedule 2, item 19,
subsections 420-57(3), (4) and (5)]
44
Chapter 2 - Taxation of emissions units
Example 2.8
Company A first holds registered emissions units at the end of the
2012-13 income year. It values those units using the FIFO cost method
under Subdivision 420-D. For the 2013-14 and 2014-15 income years,
it continues to value the units it holds at the end of the income year at
FIFO cost. For the 2015-16 income year it chooses to value the units it
holds at the end of the income year at market value.
2.75 After the 2015-16 income year, a taxpayer will be able to change
its valuation method at any time after it has adopted a particular method for
the 4 most recent income years they held an emissions unit at the end of the
year. Allowing for this ongoing periodic change of valuation method, while
preventing a direct change from the FIFO cost method to the actual cost
method, provides for changing business circumstances while limiting the
opportunities for tax arbitrage. Tax arbitrage opportunities may arise from
the exploitation of differences between what units the FIFO cost method
treats as on hand at the end of the income year and what units the actual
cost method treats as on hand at the end of the income year and also any
differences between the cost and market value of units. [Schedule 2, item 19,
subsections 420-57(5) and (6)]
Example 2.9
The 2016-17 income year is the first income year for which Company
B holds registered emissions units at the end of the income year. It
values those units using the actual cost method under Subdivision
420-D. For that year and for each of the following 3 income years the
company values all the units it holds at the end of the income year
using the actual cost method. Company B can choose to adopt the
market value method from the 2020-21 income year.
Cost of a registered emissions unit
2.76 The cost of a registered emissions unit is a defined term. The cost
of a unit that is not issued to you free of charge is the total of expenditure
you incurred in becoming the holder of the unit that you can deduct under
section 420-15. [Schedule 2, item 42, definition cost of a registered emission unit
subsection 995-1(1), item 19, section 420-60]
2.77 This cost would typically not be limited to the price paid for a unit
but would also cover transaction costs (for example, a brokerage fee)
incurred in becoming the holder of a registered emissions unit.
2.78 The cost of a free Australian emissions unit is its market value just
after you started to hold it. This is explained in more detail below under
'Valuation of free units'.
2.79 In working out the cost of emissions units on hand at the end of an
income year for income tax purposes taxpayers who want to use historic
cost have a choice of applying the FIFO cost method or the actual cost
method.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
First-in, first-out
2.80 FIFO is an accounting method commonly used in accounting for
fungible items on an historic cost basis. Certain categories of registered
emissions units are essentially fungible in that one unit can replace another.
For example Australian emissions units of the current or a past vintage and
eligible international emissions units can be used interchangeably to prevent
or reduce a shortfall. Similarly Australian emissions units with different
future vintages would form separate categories of fungible items.
2.81 The FIFO cost method is used to determine which units are no
longer held (that is sold, transferred, relinquished or surrendered) and which
are still on hand at the end of an income year. Units in the same category,
for example the same future vintage, are treated as being disposed of in the
same order as they are acquired. [Schedule 2, item 19, section 420-52]
2.82 The FIFO rule does not apply beyond income tax. For example,
the rule does not affect the operation of the Registry accounts in the
National Registry of Emissions Units. [Schedule 2, item 19, section 420-52]
Actual cost
2.83 The actual cost method is a version of historic cost that requires
the tracking of individual emissions units, when they were acquired and for
what cost, and the specific emissions units that are on hand at the end of the
income year. This method depends on the National Registry and takes into
account the cost of the actual units that a taxpayer holds at the end of the
income year in the rolling balance. This method is possible because each
emissions unit on the National Registry will have a unique identification
number. This method is called the actual cost method in the legislation but
is also often referred to as the specific identification method. [Schedule 2, item
19, section 420-53]
Market value method
2.84 The market value method entails valuing the emissions units on
hand at the end of the income year at their market value at that time. Market
value is a defined term in the ITAA 1997. Market value generally has its
ordinary meaning but that ordinary meaning is affected by Subdivision
960-S. [Schedule 2, item 19, section 420-54]
Valuation of free units
Valuation of free units issued other than under the EITE industries
program or as coal mining assistance
2.85 If the Authority issues a unit free of charge to a taxpayer under the
main bill and that taxpayer still holds that unit at the end of an income year,
the general rule is that the cost of the unit is its market value just after the
taxpayer began to hold it. This reflects what it would have cost the taxpayer
46
Chapter 2 - Taxation of emissions units
to buy a unit at that time and, therefore, provides a neutral treatment
between free units and purchased units which does not distort a taxpayer's
choice to surrender or sell the free unit. It is also consistent with the
ordinary treatment of Government assistance received by a taxpayer in the
course of carrying on its business, which is that the amount is assessable
income in the year it is derived (for ordinary income) or received (for
statutory income).
2.86 There is an exception in limited circumstances where a taxpayer
holds units at the end of an income year that were issued free of charge to
the taxpayer under the EITE industries program or in accordance with
Part 8A (coal mining) of the main bill.
Valuation of free units issued under the EITE industries program or as
coal mining assistance
2.87 A free unit issued to an entity in accordance with the EITE
industries program or in accordance with Part 8A (coal mining) is valued at
zero at the end of the income year in specified circumstances. This
valuation rule was referred to in the White Paper as a `no-disadvantage
rule'. For the rule to apply, all of the following conditions must be satisfied:
� the entity holds the unit at the end of the relevant income
year
� the entity held the unit at all times from when the Authority
issued it to the entity until the end of that income year
� the relevant income year ends on or before the last day for
surrendering units for the financial year of that particular
vintage - which will be on 15 December after the end of the
vintage year.
[Schedule 2, item 19, section 420-58]
2.88 This no-disadvantage rule is designed to minimise any timing
disadvantage that an entity in an EITE industry or coal mining might
arguably suffer by bringing to account the value of the free unit as income
during the no-disadvantage period where it receives a free unit and still
holds it in the circumstances described.
2.89 The valuation at zero under this `no-disadvantage rule' applies
and the units have a nil value at the end of the income year regardless of
whether the taxpayer has chosen to value all the units it holds under the
FIFO cost method, the actual cost method or the market value method.
[Schedule 2, item 19, section 420-58]
2.90 Where an entity holds a free unit at the end of an income year that
ends after the period during which the no-disadvantage rule applies, the free
unit is valued at cost or market value depending on the choice of valuation
method that the taxpayer makes. The cost of a free unit in those
circumstances under both the FIFO cost and actual cost methods is its
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
market value immediately after it began to be held, in accordance with the
general rule for valuing at cost units issued free of charge. [Schedule 2,
item 19, subsections 420-60(1) and (2)]
2.91 EITE industries and coal mining entities are different from coal-
fired electricity generators as EITEs and coal mining entities compete on
the world market. The aim of the annual assistance is to minimise the
impact of the scheme on decisions of EITE entities and coal mining entities
on whether to continue to produce in Australia. Coal-fired electricity
generators are being provided with transitional assistance which is not
expected to influence their production decisions. Free units issued to coal-
fired electricity generators, if held at the end of the income year, are
included in assessable income for that year, consistent with the approach to
taxing industry assistance generally (see discussion above under `Valuation
of free units issued other than under the EITE industries program').
Example 2.10
In August 2013 the Authority issues 1 million free Australian
emissions units with a 2013-14 vintage to an EITE entity. The market
value of a unit at issue (as per the secondary market) is $21.
In October 2013 the entity sells 400,000 of the free Australian
emissions units for $22 each. The entity has an emissions liability for
the 2013-14 emissions year and surrenders 400,000 units in June 2014
and a further 100,000 in December 2014 to avoid a unit shortfall
penalty (for not surrendering sufficient units by the due date,
15 December 2014).
The entity sells the remaining 100,000 units in July 2015 for $25 each.
For income tax, the entity has a standard income year ended 30 June
and has chosen to value all units held at the end of an income year at
actual cost.
For simplicity this example concentrates on the group of free
Australian emissions units with a 2013-14 vintage and ignores any
other units acquired, held or surrendered by the entity.
Income tax treatment
Income year ended 30 June 2014: the proceeds of selling units
(400,000 @ $22 = $8.8 million) are assessable income. The surrender
of units has no effect on taxable income because none of the units were
held at the start of the income year and no amount is included in
assessable income. The remaining 200,000 units held at year end are
valued at zero in the rolling balance under the no-disadvantage rule.
The net effect on taxable income is an increase of $8.8 million.
Income year ended 30 June 2015: The surrender of units has no effect
on taxable income because the opening balance is zero and no amount
is included in assessable income. At year end the no-disadvantage
period has finished because the last surrender date for the 2013-14
emissions year (15 December 2014) has passed. Consequently, the
remaining 100,000 units held at year end are valued in the rolling
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Chapter 2 - Taxation of emissions units
balance at their deemed cost, the market value at the date of issue
(100,000 @ $21 = $2.1 million). The net effect on taxable income is an
increase of $2.1 million.
Income year ended 30 June 2016: the proceeds of selling units
(100,000 @ $25 = $2.5 million) are assessable income. The entity
deducts the decline in the value of units held in the rolling balance
(100,000 @ $21 = $2.1 million). Therefore, the net effect on taxable
income is an increase of $400,000.
Interactions of emissions units provisions with the rest of the income tax
law
Anti-overlap rules
2.92 Division 420 covers most, but not all, issues about the acquisition,
holding and disposing of registered emissions units. One matter it does not
cover is the deductibility of any expenses incurred in holding emissions
units. Those expenses are covered by the ordinary deduction provisions,
especially the general deduction provision, section 8-1. Similarly, interest
expenses incurred in financing the acquisition of registered emissions units
are considered under the general deduction provision.
2.93 Where Division 420 covers an issue, it generally has priority over
the rest of the income tax law in working out the income tax treatment of
the acquisition, holding and disposing of units. Subdivision 420-E contains
detailed rules to give effect to this object and sets out exceptions to the
general primacy of Division 420. Those detailed rules specifically cover:
� expenditure an entity incurs in becoming the holder of
registered emissions unit [Schedule 2, item 19, section 420-65]
� an amount an entity is entitled to receive because it ceases to
hold a registered emissions unit [Schedule 2, item 19,
section 420-70].
2.94 Expenditure incurred in becoming the holder of, or ceasing to
hold, a registered emissions unit is generally deducted under Division 420
and not under the other provisions of the income tax law. Nor is that
expenditure taken into account in working out the amount of a net profit or
loss that is assessable or deductible respectively outside Division 420.
However, for expenditure relating to acquiring free Australian emissions
units there are special rules that are discussed above under the heading
'Deductions for expenditure incurred in obtaining a unit'. [Schedule 2, item 19,
subsections 420-65(1), (2) and (7)]
2.95 The assessability of an amount that an entity is entitled to receive
because it ceases to hold a registered emissions unit is considered primarily
under Division 420 and not under other provisions of the income tax law.
Nor is the amount receivable taken into account in working out the amount
of a net profit or loss that is assessable or deductible respectively outside
Division 420. This does not affect the operation of the residence and source
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
rules in sections 6-5 and 6-10, which are central assessable income
provisions that all amounts of ordinary and statutory income must satisfy to
be assessable income. [Schedule 2, item 19, subsections 420-70(1) and (2)]
2.96 Division 420 also has priority in the treatment of free Australian
emissions units. Contrary to the normal treatment, the value of free units
received is not assessed as ordinary income or as a bounty or subsidy
received in relation to carrying on a business (under section 15-10). Rather,
the value of any free units held at the end of an income year is taken into
account (under Subdivision 420-D) in working out any change in the value
of units held over the income year. [Schedule 2, item 19, subsection 420-70(3)]
Forestry sequestration and destroying synthetic greenhouse gases
2.97 As discussed above under `Deductions for expenditure in
obtaining a unit', expenditure incurred in forestry sequestration activities or
in destroying synthetic greenhouse gases or under the domestic offsets
program is not deducted under Division 420. Those expenditures will
continue to be considered for deduction under the provisions that ordinarily
apply to those activities, for example, the general deduction provision
(section 8-1) and capital allowance provisions (Division 40). Consequently,
Division 420 does not change the timing of the write-off of forestry
expenditure, expenditure in destroying synthetic greenhouse gases or
expenditure under a domestic offsets program. [Schedule 2, item 19, subsections
420-15(4), (5) and (5A)]
Free Australian emissions units issued under the EITE assistance
program, to coal-fired electricity generators and to coal mining entities
2.98 Free Australian emissions units issued under the EITE assistance
program, to coal-fired electricity generators and to coal mining entities with
significant fugitive emissions of greenhouse gases are essentially
Government assistance and not the result of expenditure by the entity
receiving free units. Any expenditure that might be considered to be
incurred in becoming the holder of these units is considered under the
ordinary deduction provisions and not under Division 420. [Schedule 2, item
19, subsection 420-15(3)]
Gifts
2.99 Whether a taxpayer is entitled to a deduction for a gift of a
registered emissions unit to a deductible gift recipient is determined under
the rules about deductions for gifts in Division 30. [Schedule 2, item 19,
subsection 420-65(6)]
Capital gains and losses
2.100 Consistent with the priority given to Division 420, any capital
gain or capital loss that a taxpayer makes from a registered emissions unit
50
Chapter 2 - Taxation of emissions units
or from the right to a free Australian emissions unit is disregarded. [Schedule
2, item 17, section 118-15]
Trading stock
2.101 To make it completely clear that the trading stock provisions do
not apply to registered emissions units (even where they might otherwise be
trading stock), registered emissions units are expressly excluded from the
definition of trading stock. [Schedule 2, items 10 and 47, section 70-12 and definition
trading stock subsection 995-1(1)]
Taxation of financial arrangements
2.102 Division 230 defines `financial arrangement' and sets out the
methods under which gains and losses from financial arrangements will be
brought to account for income tax purposes.
2.103 The White Paper set out the Government's intention that Division
230 will not apply to the acquisition, holding and disposal of registered
emissions units. To avoid any doubt as to whether a registered emissions
unit is a financial arrangement, Division 230 is amended so that it does not
apply to a gain or loss made from a registered emissions unit. [Schedule 2,
item 18, section 230-481]
2.104 Division 230 may apply to derivatives of registered emissions
units (for example, an option in relation to a unit) where the derivatives
satisfy the relevant conditions (including relevant thresholds for the entity
that has the derivative). As derivatives of units are one of many types of
derivatives, the normal rules that apply to derivatives also apply to them.
Foreign residents - whether they are taxable in relation to registered
emissions units
2.105 Proposed Division 420 applies to registered emissions units held
by both Australian and foreign residents. For foreign residents the
application of Division 420 is subject to the terms of any relevant double
tax treaty between Australia and the taxpayer's country of residence.
2.106 Under the core income tax rules, foreign residents are subject to
Australian income tax on the ordinary and statutory income that they derive
from Australian sources or that is included in a taxpayer's assessable
income on some basis other than having an Australian source.
2.107 Registration of an emissions unit on the Australian register is to
be treated as founding an Australian source because registration on the
Australian register is a clear and verifiable link to Australia. Further, the
ultimate use of an Australian emissions unit is to acquit an Australian
emissions liability. However, in the absence of a specific source rule, it is
uncertain whether, in all cases, income arising from dealing in registered
emissions units would have a source in Australia under the common law.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
2.108 To ensure that amounts Division 420 includes in assessable
income have an Australian source, the proceeds from selling units,
increases in the rolling balance over an income year and amounts assessable
upon disposals unrelated to gaining assessable income will be treated as
having an Australian source and, therefore, as assessable income of a
foreign resident. [Schedule 2, item 19, subsections 420-25(3), 420-40(6) and 420-45(4)]
Some foreign residents are not taxable in relation to registered emissions
units
2.109 However, for a resident of a country with which Australia has a
tax treaty, the deemed source rules are subject to the treaty terms.
Australia's taxing rights may be limited by the relevant tax treaty to
circumstances where a foreign resident's units are connected to a permanent
establishment in Australia. Where Australia has no taxing right, a foreign
resident would not maintain a rolling balance account for their units or be
able to claim a deduction for the cost of acquiring units. To ensure that the
law achieves this result, specific rules provide that if the proceeds of selling
a registered emissions unit would not have been assessable income in
Australia when a taxpayer started to hold a unit, a taxpayer cannot deduct
expenditure incurred in buying the unit or a decrease in the value of any
units they hold. These rules extend to where a taxpayer is deemed to
acquire a registered emissions unit, for example on importation of an
international emissions unit. [Schedule 2, item 19, subsections 420-15(6) and 420-
45(5)]
Changes in whether an entity is taxable in Australia in relation to
registered emissions units
2.110 An entity may be taxable in Australia in relation to registered
emissions units when it acquires a unit but become non-taxable before it
stops holding the unit. This could result, for example, where an entity
changes its residence from Australia to a country with which Australia has a
double tax treaty. The entity is treated as having sold the unit to someone
else for its market value just before when the entity ceased to be taxable in
Australia (in relation to registered emissions units) and to have repurchased
it for the same amount when the entity is no longer taxable. Consequently,
the market value will be assessable income under section 420-25 and the
unit is subsequently ignored in accounting for registered emissions units
held at the start and end of an income year (unless the entity becomes
taxable again). [Schedule 2, item 19, section 420-41]
2.111 Similarly, an entity that is not taxable in Australia in relation to
registered emissions units when it acquires a unit might become taxable
before it stops holding the unit. This could result, for example, where an
entity changes its residence from a country with which Australia has a
double tax treaty to Australia. The entity is treated as having bought the unit
from someone else for its market value and as starting to hold the registered
52
Chapter 2 - Taxation of emissions units
emissions unit just after the entity started to be taxable in Australia. If the
entity still holds the unit at the end of an income year after the entity
becomes taxable, the unit is taken into account as a registered emissions
unit held at the end of that income year and so at the start of the next
income year. The cost of the registered emissions unit is its deemed
acquisition cost, being its market value at the date the entity became
taxable. [Schedule 2, item 19, section 420-22]
2.112 Changes in taxability in relation to registered emissions units are
not expected to be common. However, these rules have been included to
make the treatment clear. They ensure that only a gain or loss that accrues
while the entity is taxable in Australia, and only that gain or loss, is bought
to account for tax purposes under Division 420, which is consistent with the
scheme of the Division. The rules are designed to also produce that result
where there is more than one change in taxability, for example a taxable
entity becomes non-taxable but later becomes taxable again.
Consolidated groups of entities
Consequences when an entity joins a consolidated group
2.113 If an entity that holds registered emissions units joins a
consolidated group or multiple entry consolidated group (MEC group) part
way through an income year, its income year ends at the joining time
(section 701-30 of the ITAA 1997). To ensure a tax neutral outcome for an
entity that ceases to hold a registered emissions unit because it joins a
consolidated group or MEC group, the value of the registered emissions
unit at that time will be taken to be equal to:
� if the unit was held by the joining entity at the start of the
income year -- the value of the unit at the start of the income
year
or
� otherwise -- the expenditure incurred by the joining entity in
becoming the holder of the unit. [Schedule 2, items 25-28,
section 701-35]
2.114 However, if the entity becomes an eligible tier-1 company of a
MEC group, section 701-35 will not apply to set the value of registered
emissions units held by the joining entity at a tax neutral amount.
[Schedule 2, item 40, subsection 719-165]
2.115 As a consequence of fixing the value of the registered emissions
unit at the end of the income year in which the joining time occurs under
subsection 701-35(5), no election would be available under
Subdivision 420-D to value the registered emissions unit at that time.
2.116 Under the consolidation tax cost setting rules, registered
emissions units held by a joining entity will be reset cost base assets.
However, the tax cost setting amount will not exceed the greater of the
53
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
market value of the registered emissions units and the joining entity's
terminating value for the units. [Schedule 2, items 31-33, section 705-40]
2.117 The terminating value for a registered emissions unit held at the
joining time will be:
� if the unit was held by the joining entity at the start of the
income year -- the value of the unit at the start of the income
year
or
� otherwise -- the expenditure incurred by the joining entity in
becoming the holder of the unit. [Schedule 2, item 30,
subsection 705-30(1A)]
2.118 For the purpose of applying Division 420, if the head company of
a consolidated group or MEC group acquires a joining entity that holds a
registered emissions unit:
� the head company will be taken to have held the unit at the
start of the income year in which the joining time occurs; and
� the value of the unit at the start of the income year will be the
tax cost setting amount for the unit. [Schedule 2, item 29,
subsection 701-55(3A)]
2.119 However, where the same registered emissions unit has its tax
cost set more than once in an income year, the head company will include
the last tax cost setting amount as the value of the unit at the start of the
income year in which the joining time occurs. [Schedule 2, item 20,
paragraph 701-10(5)(a)]
2.120 The head company will value the registered emissions units at the
end of the income year based on the choice that it has made for valuing
registered emissions units. This choice will override any choice made by
the joining entity. [Schedule 2, item 39, item 2A of the table in subsection 715-660(1)]
Consequences when an entity leaves a consolidated group
2.121 When an entity that holds registered emissions units leaves a
consolidated group or MEC group, the units will be taken to be an asset of
the head company at the end of the income year in which the leaving time
occurs, but not at the start of the next income year. The value of the
registered emissions unit at that time will be taken to be equal to:
� if the unit was held by the head company at the start of the
income year -- the value of the unit at the start of the income
year
or
54
Chapter 2 - Taxation of emissions units
� otherwise -- the expenditure incurred by the head company
in becoming the holder of the unit. [Schedule 2, items 21 to 24,
section 701-25]
2.122 As a consequence of fixing the value of the registered emissions
unit at the end of the income year in which the leaving time occurs under
subsection 701-25(5), no election would be available under
Subdivision 420-D to value the registered emissions unit at that time.
2.123 The leaving entity will be able to choose the valuation method for
registered emissions units that it holds at the end of the income year in
which the leaving time occurs. In this regard, as a consequence of the
amendments to subsection 715-660(1), the leaving entity can ignore the exit
history rule and can therefore make a fresh choice in relation to the
valuation method for registered emissions units (section 715-700).
Consequential amendments
2.124 Consequential amendments will ensure that the following
provisions apply to registered emissions units in the same way that they
apply to trading stock:
� sections 705-57, 705-163 and 705-240, which adjust the tax
cost setting amount where there has been a loss of pre-CGT
status of membership interests in a joining entity
� section 713-225, which adjusts the way in which the tax cost
setting amounts are worked out for partnership cost setting
interests. [Schedule 2, items 34-38, sections 705-57, 705-163, 705-240
and 713-225]
Pay As You Go instalments
2.125 Currently, instalment income primarily includes ordinary income
that is assessable. Proceeds from ceasing to hold units (or from being taken
to have ceased to hold them) would mainly be ordinary income. One
possible exception is for units acquired for the purpose of resale at a profit.
In such cases the proposed rules include gross proceeds in the taxpayer's
assessable income, whereas the net gain or loss would be brought to
account under the tax law's ordinary income principles.
2.126 The PAYG instalment provisions are amended so that instalment
income includes all amounts included in assessable income from ceasing to
hold (or from being taken to cease to hold) units. This will remove
uncertainty about whether the proceeds of sales or otherwise from ceasing
to hold units are instalment income, while furthering the aim of the PAYG
instalment provisions of efficiently collecting liabilities to the
Commonwealth. Income from an increase in the value of units on hand, and
deductions from a decrease in the value of units on hand, will not be
instalment income. The PAYG instalment provisions will thus operate
55
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
similarly for units under Division 420 and for trading stock. [Schedule 2, item
51, subsection 45-120(5) of the TAA 1953]
Goods and Services tax
2.127 For the avoidance of doubt a new subsection is inserted into the
meaning of supply provisions to clarify that a supply of an eligible
emissions unit or a Kyoto unit is treated as a supply of a personal property
right(s). [Schedule 2, item 1, section 9-10 of the GST Act 1999]
2.128 The GST Act is also amended to clarify that an eligible emissions
unit or a Kyoto unit is not real property for the purposes of the GST Act.
[Schedule 2, items 5 and 6, section 195-1 of the GST Act 1999]
2.129 Treating the supply of an eligible emissions unit or a Kyoto unit
as the supply of a personal property right(s) and excluding the unit from the
meaning of real property in the GST Act ensures consistent GST treatment
of the various types of eligible emissions units or Kyoto units, regardless of
whether they involve rights that would otherwise constitute real property
for GST purposes. The amendment to section 9-10 is made for this purpose
and not because such units would not otherwise be a supply under the terms
of subsections 9-10(1) or (2) of the GST Act.
2.130 The amendments also clarify that a supply of an eligible emissions
unit or a Kyoto unit, being the supply of a right, may be GST-free under
item 4 of the table in subsection 38-190(1) of the GST Act.
2.131 A new subsection is inserted into section 38-190 of the GST Act
to ensure that the supply of an eligible emissions unit or a Kyoto unit is not
a supply directly connected with real property. This means that
paragraph (a) of item 2 or item 3 in the table in subsection 38-190(1) of the
GST Act may apply to make that supply GST-free despite any direct
connection with real property. [Schedule 2, item 2, section 38-190 of the GST
Act 1999]
2.132 The terms eligible emissions unit and Kyoto unit are defined in
the GST Act by reference to their meaning in the main bill. [Schedule 2, items
3 and 4, section 195-1 of the GST Act 1999]
Example 2.11
An Australian resident company is registered for GST and carries on a
business of trading in eligible emissions units. The Australian resident
company sells 10,000 eligible emissions units to a UK (non-resident)
company. The UK company intends to on-sell the units. As the UK
company does not have a presence, such as a branch, in Australia the
sale of the units by it will be through its UK enterprise to any entities
seeking to buy such units.
The facts indicate that the UK company intends to use the units outside
Australia.
Therefore, the supply of units (a supply of a personal property right(s))
by the Australian resident company to the UK company is GST-free
56
Chapter 2 - Taxation of emissions units
under paragraph (a) of item 4 of the table in subsection 38-190(1) of
the GST Act.
On these facts the supply is also GST-free under paragraph (b) of
item 4, paragraph (a) of item 2, or item 3, of the table in subsection
38-190(1). If the UK company is not registered, and not required to be
registered, for GST the supply is also GST-free under paragraph (b) of
item 2 of the table in subsection 38-190(1) of the GST Act.
Example 2.12
Following on from Example 2.11, assume the UK (non-resident)
company was instead a liable entity (under the main bill) that intended
to surrender the eligible emissions units against its emissions number
in Australia for a financial year.
The intended use of the units is not outside Australia and therefore
paragraph (a) of item 4 of the table in subsection 38-190(1) of the GST
Act is not satisfied. The supply of the units by the Australian resident
company to the UK company is therefore not GST-free under
paragraph (a) of item 4.
However, the supply is GST-free under paragraph (b) of item 4,
paragraph (a) of item 2, or item 3, of the table in subsection 38-190(1) of
the GST Act. If the UK company is not registered, and not required to be
registered for GST, the supply is also GST-free under paragraph (b) of
item 2 of the table in subsection 38-190(1) of the GST Act.
Example 2.13
An Australian resident company (First Aus Co) is registered for GST
and carries on a business of trading in eligible emissions units. First
Aus Co sells 10,000 eligible emissions units to another Australian
resident company (Second Aus Co). Second Aus Co has a branch in
the US. The units are acquired by the US branch of Second Aus Co
and it is intended to sell the units through that US branch to any
entities seeking to buy such units. The Australian presence of
Second Aus Co does not have any involvement with the purchase of
the units and the units are not acquired for the purposes of selling
through the enterprise that it is carrying on in Australia.
The facts indicate that the US branch of Second Aus Co intends to use
the units for on-supply outside Australia. Therefore, the supply of units
(a supply of a personal property right(s)) by First Aus Co to Second
Aus Co is GST-free under paragraph (a) of item 4 of the table in
subsection 38-190(1) of the GST Act.
However, if the units were acquired by the Australian presence of
Second Aus Co to on-supply to non-resident entities the use of the
units is not outside Australia and the supply of the units by First Aus
Co to Second Aus Co would not be GST-free under item 4(a) of the
table in subsection 38-190(1) of the GST Act.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Example 2.14
A non-resident company has 5,000 emission reduction units (Kyoto
units). The non-resident company does not carry on any enterprise in
Australia. The non-resident company enters into an agreement with an
Australian resident company to sell the 5,000 emission reduction units
to the Australian resident company.
The supply of the units is a supply of personal property rights. If the
agreement for the transfer of the units to the Australian resident
company is not made in Australia the supply of the units is not
connected with Australia. Consequently GST is not payable if the units
are acquired solely for a creditable purpose.
If, however, the supply of the units is under an agreement made in
Australia, the supply of the units is connected with Australia. Whether
the supply is a taxable supply, and thus subject to GST, depends on
whether the non-resident company is registered or required to be
registered for GST.
Consequential amendments
2.133 Amendments that govern how the provisions in Division 420
about registered emissions units interact with the rest of the income tax law
are discussed above under the heading `Interactions of emissions units
provisions with the rest of the income tax law'. Other consequential
amendments are explained below.
Inclusion of definitions
2.134 The amendments to the taxation law discussed in this chapter have
necessitated the inclusion of various new definitions in the taxation law and
the amendment of some others. The substantive effects of these changes are
discussed in the course of this chapter. The definitions included (or
amended) are in the:
� ITAA 1997 [Schedule 2, items 40A to 50, subsection 995-1(1)]
� GST Act 1999. [Schedule 2, items 3 to 6, subsection 195-1(1) of the
GST Act 1999]
Amendment of checklists
2.135 The amendments to the taxation law discussed in this chapter have
necessitated the amendment of various checklists in the ITAA 1997.
[Schedule 2, items 8 and 9, section 10-5 and 12-5 of the ITAA 1997]
Application and transitional
2.136 The amendments to the tax law are to apply from the same time as
section 3 of the main bill. This ensures that as soon as the Carbon Pollution
58
Chapter 2 - Taxation of emissions units
Reduction Scheme starts, the tax amendments can apply. The application of
the tax amendments is not tied to any particular income year of the
taxpayer. [Section 2]
2.137 Sections 3 to 387 of the main bill commence on the 28th day after
that Bill receives the Royal Assent. However, those sections do not
commence at all if the Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010, the Australian Climate Change Regulatory
Authority Bill 2010, the Carbon Pollution Reduction Scheme (Charges--
Excise) Bill 2010, the Carbon Pollution Reduction Scheme (Charges--
Customs) Bill 2010 and the Carbon Pollution Reduction Scheme
(Charges--General) Bill 2010 do not receive the Royal Assent on or before
the 28th day after the main bill receives the Royal Assent. This qualification
is designed to ensure that the bills comprising the legislative package for
the scheme commence together. [Clause 2 of the Carbon Pollution Reduction
Scheme Bill 2010]
Application of income tax provisions
2.138 Taxpayers are able to hold accounts on the National Registry prior
to the Scheme commencing and these accounts continue to exist when the
Scheme commences. Division 420 of the ITAA 1997 only applies to
registered emissions units that a taxpayer start to hold (or is taken to start to
hold) after Division 420 commences, ensuring that there is no retrospective
application. [Schedule 2, item 50A] [Section 420-1 of the Income Tax (Transitional
Provisions) Act 1997]
Kyoto units held on the National Registry when the Scheme commences
2.139 Taxpayers have been able to hold and trade Kyoto units on the
National Registry from 30 September 2009. The Registry was established
under the executive power of the Commonwealth. Before the Scheme
commences, the existing income tax provisions apply to these taxpayers.
2.140 Division 420 provides a common income tax treatment of
emissions units regardless of the purpose of the emissions unit holder in
acquiring or holding them. A taxpayer that holds a Kyoto unit on the
National Registry immediately before Division 420 commences
automatically has the units transferred to the new tax regime under
Division 420. [Schedule 2, item 50A] [Section 420-5 of the Income Tax (Transitional
Provisions) Act 1997]
2.141 The deemed sale and re-purchase will occur at cost, regardless of
whether the asset was held on capital or revenue account when the CPRS
legislation commences. This deemed sale and re-purchase at cost ensures
that there is neither taxation of unrealised gains nor deductions for
unrealised losses when the CPRS legislation commences. [Schedule 2, item
50A] [Section 420-5 of the Income Tax (Transitional Provisions) Act 1997]
59
Chapter 3
Amendments to the Ozone Protection and
Synthetic Greenhouse Gas Management
Act 1989
Outline of chapter
3.1 This chapter describes amendments to the Ozone Protection and
Synthetic Greenhouse Gas Management Act 1989 (Ozone Act) to ensure its
consistency with the Carbon Pollution Reduction Scheme (the Scheme).
The chapter outlines amendments to the Ozone Act that will include sulphur
hexafluoride (SF6), a synthetic greenhouse gas, as a controlled substance
and implement a complementary measure aimed at addressing competitive
distortions that arise as a result of exempting hydrochlorofluorocarbons
(HCFCs) from scheme coverage and destruction arrangements.
Context of amendments
3.2 The Ozone Act gives effect to Australia's obligations under the
Montreal Protocol on Substances that Deplete the Ozone Layer and under
the United Nations Framework Convention on Climate Change (UNFCCC).
The Ozone Act places obligations on importers and manufacturers of two
synthetic greenhouse gases covered under the Kyoto Protocol, namely
hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs), which have been
introduced by industry as replacements for ozone depleting gases that have
been or are being phased out under the Montreal Protocol.
3.3 A third Kyoto Protocol synthetic greenhouse gas, SF6, has not to
date been regulated under the Ozone Act.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
3.4 Under the Scheme, importers and manufacturers of 25,000 tonnes
of carbon dioxide equivalent or more of synthetic greenhouse gases,
including those contained in equipment, will be liable entities. Entities that
import or manufacture equipment containing gases controlled under the
Montreal Protocol, principally HCFCs, which are direct replacements for
synthetic greenhouse gases, could gain a competitive advantage over
entities with scheme liabilities for synthetic greenhouse gases.
3.5 Under the Scheme, entities that arrange for the recovery and
destruction of synthetic greenhouse gases will be issued with Australian
emissions units for each tonne of carbon dioxide equivalence destroyed.
Australian emissions units will not be issued for the destruction of ozone
depleting substances. Under these circumstances there will be few
incentives to maintain current activities directed at the recovery and
destruction of ozone depleting substances.
3.6 Complementary measures are therefore required to address these
competitive distortions.
3.7 Entities that import or manufacture less than 25,000 tonnes of
carbon dioxide equivalence of synthetic greenhouse gases, including those
contained in equipment, may gain a competitive advantage over importers
and manufacturers above this threshold. Moreover, entities that import or
manufacture bulk quantities of HCFCs could gain a competitive advantage
over entities with scheme liabilities for synthetic greenhouse gases. The
Government will develop measures to remove the potential for market
distortions resulting from application of the threshold. The Government will
develop other measures to minimise competitive distortions that might
otherwise arise between HCFCs and gases covered under the Scheme.
Summary of new law
3.8 The consequential amendments bill gives effect to five key
policies:
� The first policy involves the inclusion of SF6 as a controlled
substance under the Ozone Act. This will place reporting
obligations on importers and manufacturers of this
greenhouse gas.
� The second policy places a prohibition on the import of
HCFC-containing equipment. This will remove the incentive
for consumers to increase consumption of equipment
containing ozone depleting substances upon the introduction
of a carbon price signal. This policy is analogous to the
prohibition on equipment containing chlorofluorocarbons
(CFCs) that was introduced in the 1990s and will assist
Australia in meeting its international obligations under the
Montreal Protocol.
62
Chapter 3 - Amendments to the Ozone Protection
and Synthetic Greenhouse Gas Management Act 1989
� The third policy provides for revenue collected as levies
under the Ozone Protection and Synthetic Greenhouse Gas
(Import Levy) Act 1995 and the Ozone Protection and
Synthetic Greenhouse Gas (Manufacture Levy) Act 1995 to
be used to finance the recovery and destruction of waste
scheduled substances. This will help to reduce any incentives
for destruction facilities to preferentially destroy synthetic
greenhouse gases upon commencement of the Scheme.
� The fourth policy involves the streamlining and consolidation
of import licensing obligations and categories. This will
involve the consolidation of all existing synthetic greenhouse
gas import licences under a single licence category and
amendment of reporting and levy obligations from a calendar
to a financial year basis. This will align the obligations of
licence holders under the Ozone Act with liable entities
under the Scheme.
� The fifth policy allows for the Minister to disclose import
and manufacture information to the Australian Climate
Change Regulatory Authority in order to assist with
compliance under the Scheme.
Comparison of key features of new law and current law
New law Current law
Licensing and reporting Licensing and reporting obligations apply to
obligations apply to importers importers and manufacturers of HCFCs,
and manufacturers of HCFCs, HFCs and PFCs. No obligations apply to
HFCs, PFCs and SF6. SF6.
Schedule 4 of the Ozone Act Schedule 4 of the Ozone Act contains a
will contain a provision that provision that prohibits the import and
prohibits the import and domestic manufacture of equipment
domestic manufacture of containing CFCs. There are presently no
equipment designed to operate limits on the import of HCFC-containing
using CFCs or HCFCs. equipment.
The purposes for which The Ozone Protection and Synthetic
money credited to the Ozone Greenhouse Gas Account can be used for
Protection and Synthetic reimbursing the costs associated with
Greenhouse Gas Account can administration of the Ozone Act; for
be used will include recovery programs to phase out ozone depleting
and destruction programs for substances; for emissions minimisation
ozone depleting substances programs; and for paying costs associated
and synthetic greenhouse with the National Halon Bank. The
gases. destruction of ozone depleting substances
and synthetic greenhouse gases is not
63
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
New law Current law
presently provided for under the account.
Importers and manufacturers Importers and manufacturers of bulk
of all synthetic greenhouse synthetic greenhouse gases are required to
gases, including synthetic hold a Controlled Substances (SGG) Licence,
greenhouse gases contained in while importers of refrigeration and air
equipment, will be required to conditioning equipment containing an HFC
hold a Controlled Substances or HCFC refrigerant are required to hold a
(SGG) Licence. Licences will Pre-charged Equipment Licence. Licences
be valid for two financial are valid for two calendar years.
years.
The Minister will be able to
disclose information to the
Australian Climate Change
Regulatory Authority.
Scheduling of sulphur hexafluoride
3.9 Schedule 1 of the Ozone Act lists those substances to which that
Act applies. Parts I to VIII apply to substances listed under the Montreal
Protocol, while Parts IX and X list HFCs and PFCs, respectively, which are
substances covered under the UNFCCC and Kyoto Protocol. Entities that
import or manufacture scheduled substances have obligations to report the
quantity and composition of their imports and, in certain cases, to pay levies
consistent with the Ozone Protection and Synthetic Greenhouse Gas
(Manufacture Levy) Act 1995 and the Ozone Protection and Synthetic
Greenhouse Gas (Import Levy) Act 1995.
3.10 SF6 is a potent greenhouse gas listed under the Kyoto Protocol.
Entities that manufacture or import more than 25,000 tonnes of carbon
dioxide equivalence of HFCs, PFCs and SF6 will be liable entities under the
Scheme.
3.11 To ensure that importers and manufacturers of SF6 can be
identified for the purpose of applying liability under the Scheme, SF6 is
being included within Schedule 1 of the Ozone Act. To this end, "Part XI
-- Sulphur hexafluoride" is added at the end of Schedule 1. This Part only
contains SF6. [Schedule 1, Part 2, item 220]
3.12 Section 7, which defines terms used throughout the Ozone Act, is
amended to include a definition of sulphur hexafluoride as "the substance
referred to in Part XI of Schedule 1, whether alone or in a mixture".
Moreover, the definition of synthetic greenhouse gas is amended so that it
refers to "an HFC, a PFC or sulphur hexafluoride". [Schedule 1, Part 2,
items 198-199]
64
Chapter 3 - Amendments to the Ozone Protection
and Synthetic Greenhouse Gas Management Act 1989
Prohibition on the import and manufacture of HCFC-containing
equipment
3.13 A prohibition on the import and domestic manufacture of HCFC-
containing refrigeration and air conditioning equipment is being
implemented for three reasons:
� There is the potential that consumers will respond to the
introduction of a price on carbon by moving to
HCFC-containing equipment. Since HCFCs have very high
global warming potentials, as well as ozone depleting
potentials, this would be a perverse outcome.
� An increase in the installed bank of HCFC-containing
equipment would, over time, place significant pressure on
Australia's Montreal Protocol import quota for HCFCs.
A shortage of HCFC for servicing of the bank could occur if
that bank is allowed to increase unrestrained.
� Australia supports the global phase-out of HCFCs through
the Montreal Protocol. A prohibition on the import and
domestic manufacture of HCFC-containing equipment would
reduce global demand for such equipment and would support
our international position.
3.14 This policy is analogous to the ban on CFC-containing equipment
that Australia implemented in the early 1990s and is consistent with the
approach pursued internationally by other developed countries.
3.15 Schedule 4 of the Ozone Act contains certain controls on the
manufacture, import and use of products containing scheduled substances.
Clause 10 of Schedule 4, which outlines a prohibition on the import and
manufacture of CFC-containing refrigeration and air-conditioning
equipment, is amended to prohibit equipment designed to operate using
CFCs or HCFCs. [Schedule 1, Part 2, items 221-223]
3.16 Under section 40 of the Ozone Act, it will remain possible for a
person to apply to the Minister for an exemption to this measure. Such an
exemption could be granted if the product is demonstrated to be essential
for medical, veterinary, defence, industrial safety or public safety purposes
and if no practical alternative exists to the use of a scheduled substance in
the operation of the product.
Use of the Ozone Protection and Synthetic Greenhouse Gas Account to
finance recovery and destruction of ozone depleting substances
3.17 Upon commencement of the Scheme, entities that recover and
destroy synthetic greenhouse gases in accordance with scheme verification
requirements will be issued with Australian emissions units for each tonne
of carbon dioxide equivalence destroyed. Since the destruction of ozone
depleting substances will not be an eligible activity for generating
65
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Australian emissions units, there is the potential for entities that currently
recover and destroy ozone depleting substances to preferentially recover
and destroy synthetic greenhouse gases. This would be a perverse outcome.
3.18 The purposes for which the Ozone Protection and Synthetic
Greenhouse Gas Account can be used are outlined in section 65D of the
Ozone Act. This section is to be amended to allow for the Account to
finance "recovery and destruction programs for ODSs and SGGs". [Schedule
1, Part 2, item 218]
Consolidation of the Pre-charged Equipment Licence and the Controlled
Substances (SGG) Licence
3.19 Currently, importers and manufacturers of scheduled substances
are required under the Ozone Act to apply for and hold an appropriate
import or manufacture licence. Importers and manufacturers of bulk
synthetic greenhouse gases are required to hold a Controlled Substances
(SGG) Licence while importers of refrigeration and air conditioning
equipment pre-charged with an HFC refrigerant are required to hold a Pre-
charged Equipment Licence.
3.20 In order for the Ozone Act to be consistent with the Scheme
legislation, the distinction between synthetic greenhouse gases that are
imported in bulk and those imported within equipment needs to be
removed. Removal of this distinction requires that a single licence (an SGG
Licence) applies to all synthetic greenhouse gas importers.
3.21 This is being given effect by removing references to "pre-charged
equipment" and "pre-charged equipment licences". In certain
circumstances, sections will be repealed to take account of references to
"pre-charged equipment" or "pre-charged equipment licences" having been
removed. [Schedule 1, Part 2, items 196-197, 204-216]
3.22 Section 9 provides an exemption from the definition of
"scheduled substance" for scheduled substances in products. This section
will apply in its current form to scheduled substances that are not synthetic
greenhouse gases (i.e. ozone depleting substances). Therefore, section 9 is
to be divided into two sections: section 9 which relates to Montreal Protocol
gases (Part 1 to Part VIII of Schedule 1); and section 9A which relates to
synthetic greenhouse gases (Part IX to Part XI of Schedule 1).
3.23 For synthetic greenhouse gases, an exemption is retained for
products covered under paragraph 9(1)(b) which refers to a product which
"consists in part of that substance only because the substance was used in
the manufacturing process". It is necessary to retain this exemption as it is
not practical to monitor imports of these products (principally a range of
products containing polyurethane insulating foam "blown" with synthetic
greenhouse gases). [Schedule 1, Part 2, items 202- 203]
66
Chapter 3 - Amendments to the Ozone Protection
and Synthetic Greenhouse Gas Management Act 1989
3.24 The effect of these amendments is that bulk synthetic greenhouse
gases, synthetic greenhouse gases in pre-charged equipment (as currently
defined under the Ozone Act ) and synthetic greenhouse gases in certain
additional products will be controlled under a single SGG Licence.
Paragraph 13(1A)(b) of the Ozone Act currently provides for exemptions
from licensing requirements where the import, manufacture or export is in
circumstances prescribed by the regulations.
Controlled Substances (SGG) Licence duration and reporting timeline
3.25 Presently, licences awarded under the Ozone Act have a duration
of two years and commence on 1 January of each even-numbered year. The
reporting timeline is likewise set on a calendar year.
3.26 The licence period for SGG Licences is to be aligned with the
Scheme compliance timeline. This is being given effect by amending the
duration of the licence commencing on 1 January 2010. This licence will
expire after 30 months. Thereafter, each SGG Licence will commence on
1 July and expire after two years. [Schedule 1, Part 2, items 195, 200-201]
3.27 Further reporting obligations are deferred to the Regulations.
Offences for breach of these provisions are consistent with existing
offences relating to reporting by persons under the Act. [Schedule 1, Part 2,
item 217]
Disclosure of information to the Australian Climate Change Regulatory
Authority
3.28 Entities that import or manufacture more than 25,000 tonnes of
carbon dioxide equivalent of synthetic greenhouse gas will be covered
under the Scheme. These entities will be required to report under the NGER
Act to the Australian Climate Change Regulatory Authority (the Authority).
3.29 To aid the Authority in the exercise of its powers, the Ozone Act
is amended so that the Minister is able to disclose information collected
under that Act to the Authority. [Schedule 1, Part 1, item 67]
Application and transitional provisions
3.30 The provision that allows the Minister to disclose information to
the Authority takes effect from the day on which the Carbon Pollution
Reduction Scheme Act 2010 receives the Royal Assent. This is to facilitate
scheme implementation by the Authority.
3.31 All other items apply from 1 July 2011.
67
Chapter 4
Amendments to other legislation
Outline of chapter
4.1 This chapter provides explanatory material on those amendments
to other legislation included in the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2010 which have not been addressed in
Chapters 1-3.
Context of amendments
4.2 The context of the amendments included in this bill is described in
the General Outline segment of this explanatory memorandum. The
amendments described in this chapter are consequential in nature and are
needed to provide a comprehensive, workable scheme.
Summary of new law
4.3 This chapter addresses amendments to be made to the following
Acts and Regulations consequential on the Carbon Pollution Reduction
Scheme Bill:
� Renewable Energy (Electricity) Act 2000
� Financial Management and Accountability Regulations 1997
� Trade Practices Act 1974
� Corporations Act 2001
� Australian Securities and Investments Commission Act 2001
� Anti-Money Laundering and Counter Terrorism Financing
Act 2006.
4.4 Amendments to the Renewable Energy (Electricity) Act 2000 and
the Financial Management and Accountability Regulations 1997 are needed
as a consequence of the establishment of a new regulator, the Australian
Climate Change Regulatory Authority (Authority), and the transfer of
functions of the Renewable Energy Regulator to the new Authority.
Amendments to the NGER Act relating to the transfer of functions are
described in Chapter 1 of this explanatory memorandum.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
4.5 Amendments to the Trade Practices Act 1974 and the Australian
Securities and Investments Commission Act 2001 are needed to ensure
appropriate exchange of information between regulators.
4.6 Amendments to the Corporations Act 2001 and the Australian
Securities and Investments Commission Act 2001 are needed to implement
the decision to make eligible emissions units financial products.
4.7 Amendment of the Anti-Money Laundering and Counter
Terrorism Financing Act 2006 is needed to address the risk of money
laundering through trading in emissions units.
Detailed explanation of new law
Renewable Energy (Electricity) Act 2000
4.8 The Authority, established by the proposed Australian Climate
Change Regulatory Authority Act 2010, will administer the Renewable
Energy (Electricity) Act 2000. References to the Renewable Energy
Regulator and his or her staff are therefore deleted and references to the
new Authority and its staff substituted [Schedule 1, Part 1, items 68-69, 73-78, 81-
83].
4.9 A new definition of `official of the Authority' is also included
[Schedule 1, Part 1, item 70].
4.10 The ACCRA Bill includes provisions relating to secrecy (Part 3).
For this reason, overlapping provisions (and relevant definitions) in the
Renewable Energy (Electricity) Act 2000 are repealed [Schedule 1, Part 1, items
71-72, 79-80].
Financial Management and Accountability Regulations 1997
4.11 The Financial Management and Accountability Act 1997 sets out
the financial management, accountability and audit obligations of agencies
that are financially part of the Commonwealth. In particular, this Act
requires agencies to manage public resources efficiently, effectively and
ethically. It also requires that proper accounts and records be maintained for
the receipt and expenditure of public money.
4.12 The agencies subject to this Act are prescribed in the Financial
Management and Accountability Regulations 1997.
4.13 The Authority, which is established by the proposed Australian
Climate Change Regulatory Authority Act 2010, will administer the
Renewable Energy (Electricity) Act 2000, the NGER Act and the proposed
Carbon Pollution Reduction Scheme Act 2010.
4.14 It is prescribed in Part 1 of Schedule 1 of the Financial
Management and Accountability Regulations 1997. [Schedule 1, Part 1, item 11]
70
Chapter 4 - Amendments to other legislation
4.15 The reference in these Regulations to the Renewable Energy
Regulator will be deleted. [Schedule 1, Part 1, item 12]
Trade Practices Act 1974
4.16 The Authority is to be included in the list of agencies to which the
Australian Energy Regulator can disclose information, and the list of
agencies to which the Australian Competition and Consumer Commission
can disclose certain information if the Chair is satisfied that it would enable
or assist the Authority to perform its functions. [Schedule 1, Part 1, items 84-86]
4.17 This is important in ensuring the appropriate exchange of
information between Commonwealth agencies. Disclosure by the Authority
to the Australian Energy Regulator and the Australian Competition and
Consumer Commission will be regulated by clause 48 of the ACCRA Bill
2010.
Australian Securities and Investments Commission Act 2001
Corporations Act 2001
Financial product
4.18 Australian emissions units and eligible international emissions
units are to be financial products for the purposes of the Chapter 7 of the
Corporations Act 2001 [Schedule 1, Part 1, item 4-6] and Division 2, Part 2 of
the Australian Securities and Investments Commission Act 2001 (the ASIC
Act). [Schedule 1, Part 1, item 1]
4.19 They will not, however, be financial products for the purpose of
paragraph 12BAB(1)(g) of the ASIC Act [Schedule 1, Part 1, item 2]. In brief,
this states that a person provides a financial service if they provide a service
that is otherwise supplied in relation to a financial product.
4.20 These amendments will provide a strong regulatory regime to
reduce the risk of market manipulation and misconduct. Appropriate
adjustments to the regime to fit the characteristics of units and avoid
unnecessary compliance costs will be made. Further consultation is being
undertaken on the adjustments that may be necessary, particularly through
the amendment of regulations.
Disclosure of information
4.21 The Authority will be added to the list of agencies to which the
Australian Securities and Investments Commission (ASIC) may disclose
information. [Schedule 1, Part 1, item 3]
4.22 This means that ASIC will, for example, be able to disclose
information that it possesses about wrongdoing in connection with trading
of emissions units which is also of significance to the Authority as the
operator of the Registry.
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Amendment of the Anti-Money Laundering and Counter Terrorism
Financing Act 2006
4.23 Item 33 of the table of designated services at section 6 of the Anti-
Money Laundering and Counter Terrorism Financing Act 2006 is to be
amended to include, in the capacity of agent of a person, acquiring or
disposing of eligible emissions units where the acquisition or disposal is in
the course of carrying on a business of acquiring or disposing of emissions
units in the capacity of an agent. [Schedule 1, Part 1, item 1A-1C]
4.24 The phrase `eligible emissions units' is defined by reference to its
meaning in the main bill. It encompasses Australian emissions units and
eligible international emissions units -- that is, those units which can
generally be used for surrender. [Schedule 1, Part 1, item 1A]
4.25 The purpose of this amendment is, particularly, to address the risk
of money laundering through trading in eligible emissions units. An
example of a person subject to Item 33 is a broker who acquires Australian
emissions units on behalf of a client in the course of carrying on a business
of acquiring or disposing of emissions units as an agent.
72
Chapter 5
Transitional and application provisions
Outline of chapter
5.1 The purpose of this chapter is to describe the transitional and
application provisions included in Schedule 1 of the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2010, and other
provisions which have not been addressed elsewhere.
Context of amendments
5.2 The context of the amendments included in this bill is described in
the General Outline segment of this explanatory memorandum.
5.3 The context of the particular consequential amendments covered
by this chapter is provided below.
Summary of new law
5.4 The provisions addressed in this chapter relate to:
� the transition of functions from the Renewable Energy
Regulator (Regulator) and the Greenhouse and Energy Data
Officer (GEDO) to the proposed Australian Climate Change
Regulatory Authority (Authority)
� the application of amendments to the NGER Act
� transitional arrangements for amendments to the Ozone Act
� transitional arrangements for accounts established in the
Australian National Registry of Emissions Units (National
Registry) prior to commencement of the legislation.
Detailed explanation of new law
Transitional provisions which commence at the same time as the main
Bill
5.5 The transfer of functions from the Regulator and the GEDO to the
Authority requires various transitional provisions. These:
73
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
� attribute functions performed by the Regulator and the
GEDO before the commencement of the provisions to the
Authority [Schedule 1, Part 1, items 87-88]
� make a similar provision in relation to investigations by the
Ombudsman [Schedule 1, Part 1, item 91]
� substitute the Authority in proceedings to which the
Regulator or the GEDO was a party [Schedule 1, Part 1, item 89]
� address the transfer of records from the Regulator and the
GEDO to the Authority [Schedule 1, Part 1, item 90]
� ensure that references in appropriate instruments to the
GEDO or the Regulator can be read as references to the
Authority [Schedule 1, Part 1, item 94]
� enable certain staff members transferring from the Office of
the Renewable Energy Regulator (ORER) or the Department
of Climate Change (DCC) to start their employment with the
Authority on the same terms and conditions as they had prior
to their transfer. [Schedule 1, Part 1, item 94A]
Terms and Conditions of Employment for staff members transferring to
the Authority
5.6 The Authority will take over the functions of the GEDO and the
Regulator. Employees responsible for assisting with these functions will be
transferred from DCC and ORER to the Authority under a determination
made by the Public Service Commissioner under section 72 of the Public
Service Act 1999.
5.7 Certain staff members transferring from DCC or ORER will start
their employment with the Authority on the same terms and conditions as
their previous employment until such time as the Authority negotiates a
new enterprise agreement in accordance with the Fair Work Act 2009 and
the Fair Work (Transitional Provisions and Consequential Amendments)
Act 2009. [Schedule 1, Part 1, sub-item 94A(8)]
5.8 It is important that this occurs by way of legislation, without the
Authority having to negotiate a new enterprise agreement with staff as one
of its first tasks. Doing so would divert management attention away from
critical decisions and tasks required in the early stages of the Scheme.
Non SES employees covered in designated agreements
5.9 For most of the transferring employees, this outcome is achieved
by preserving the `designated agreement' that applies to the employees
immediately before they are transferred. [Schedule 1, Part 1, sub-items 94A(1) and
(2)]
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Chapter 5: Transitional and application provisions
5.10 The designated agreement for DCC will also apply to new
employees of the Authority (other than SES employees) employed after the
transition day. [Schedule 1, Part 1, sub-items 94A(5) and (6)]
5.11 As the DCC designated agreement will cover employees in both
DCC and the Authority after the transition day, the amendments specify
that the designated agreement in each agency will be treated as separate
agreements for the purposes of the Fair Work Act 2009 and the Fair Work
(Transitional Provisions and Consequential Amendments) Act 2009. This
means that the terms and conditions for the Authority's employees will not
be affected if DCC amends or terminates its designated agreement and vice
versa. [Schedule 1, Part 1,sub- item 94A(7)]
Employees covered by AWAs
5.12 Transferring employees whose employment terms and conditions
are provided for in an AWA will continue to be covered by that AWA
following the transition time. [Schedule 1, Part 1, sub-item 94A(3)] The
employee and the Chair of the Authority will be able to deal with that AWA
in accordance with the Fair Work (Transitional Provisions and
Consequential Amendments) Act 2009.
5.13 However, if the AWA of an employee who is not an SES
employee ceases at any time following their transfer to the Authority, and
before the Authority makes an enterprise agreement with its staff, that
employee's terms and conditions of employment will default to those of the
DCC designated agreement. [Schedule 1, Part 1, sub-item 94A(4)]
Regulations
5.14 The amendments include a regulation-making power to allow the
Governor-General to make regulations providing for transitional
arrangements for transferring employees. [Schedule 1, Part 1, item 94B]
Other transitional arrangements commencing at the same time as
section 3 of the main bill
5.15 Information obtained by the Regulator and the GEDO before
commencement will be subject to the secrecy provisions in the current
legislation -- that is, the legislation prior to repeal of the secrecy provisions
in their individual Acts. [Schedule 1, Part 1, items 92-93]
5.16 Judicial notice will continue to be taken of the signature of the
Regulator and documents or certificates signed by the Regulator prior to the
commencement of Item 93A and will still be able to be produced as
evidence. [Schedule 1, Part 1, item 93A]
5.17 Accounts held in the Australian National Registry of Emissions
Units prior to commencement both by private persons and the
Commonwealth will continue in existence under the legislated Australian
National Registry [Schedule 1, Part 1, item 95]
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
5.18 The designation of the various Commonwealth accounts will be
unchanged. [Schedule 1, Part 1, item 96]
5.19 In addition, there is power to make regulations in relation to
transitional matters arising out of the amendments made by Part 1. [Schedule
1, Part 1, item 97]
Application and transitional provisions which commence on 1 July 2011
5.20 Amendments to the NGER Act relating to registration and
reporting by liable entities will apply in relation to the financial year
beginning on 1 July 2011 and subsequent years. [Schedule 1, Part 2, item 224]
5.21 The amendment to section 31 of the NGER Act (which relates to
the power of a Court to order a person to pay a pecuniary penalty for
contravening a civil penalty provision) applies in relation to proceedings
instituted after 1 July 2011. [Schedule 1, Part 2, item 224A]
5.22 The amendments to sections 47 and 48 of the NGER Act (which
relate to the liability of executive officers) apply in relation to a
contravention of a civil penalty provision that occurs after 1 July 2011.
[Schedule 1, Part 2, item 224B]
5.23 Section 46 of the Ozone Act (which relates to quarterly reports by
importers and others) continues to apply to a report in relation to a quarter
ending before 1 July 2011. [Schedule 1, Part 2, item 225]
5.24 The purpose of these provisions is to provide certainty for those
entities required to report under these provisions.
5.25 In addition, there will be power to make regulations in relation to
transitional matters arising out of the amendments made by Part 2. [Schedule
1, Part 2, item 226]
Commencement provisions
5.26 Sections 1 to 3 of the bill commence on Royal Assent [clause 2].
5.27 The provisions in Part 1 of Schedule 1 commence at the same
time as section 3 of the main bill.
5.28 Part 3 of Schedule 1 commences on the later of the
commencement of section 3 of the Carbon Pollution Reduction Scheme Act
2010 and immediately after the commencement of Schedule 1 to the
National Greenhouse and Energy Reporting Amendment Act 2009. As the
National Greenhouse and Energy Reporting Amendment Act 2009
commenced on 16 October 2009, these provisions will commence at the
same time as Part 1 of Schedule 1. [clause 2]
5.29 Providing that certain amendments commence at the same time as
section 3 of the main bill ensures that the relevant amendments apply as
soon as the Authority is established. [clause 2]
76
Chapter 5: Transitional and application provisions
5.30 Sections 3 to 387 of the main bill commence on the 28th day after
that Bill receives the Royal Assent. However, those sections do not
commence at all if the Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010, the Australian Climate Change Regulatory
Authority Bill 2010, the Carbon Pollution Reduction Scheme (Charges -
General) Bill 2010, the Carbon Pollution Reduction Scheme (Charges -
Customs) 2010 and the Carbon Pollution Reduction Scheme (Charges -
Excise) Bill 2010 do not receive the Royal Assent on or before the 28th day
after the main bill receives the Royal Assent. This qualification is designed
to ensure that the three bills comprising legislative package for the scheme
commence together. [Clause 2 of the Carbon Pollution Reduction Scheme Bill 2010]
5.31 Part 2, Division 2 of Schedule 1 commences on 1 July 2011.
[clause 2]
5.32 The commencement and application provisions relating to the
amendments to the taxation legislation included in Schedule 2 of the
consequential amendments bill are addressed in Chapter 2 of this
explanatory memorandum.
Formal provisions
5.33 The short title of the proposed Act is the Carbon Pollution
Reduction Scheme (Consequential Amendments) Bill 2010. [clause 1]
5.34 The substantive amendments are included in Schedules 1 and 2.
[clause 3]
77
Index
Schedule 1: General amendments
Bill reference Paragraph number
Part 1, item 1 4.18
Part 1, item 1A-1C 4.23
Part 1, item 1A 4.24
Part 1, item 2 4.19
Part 1, item 3 4.21
Part 1, item 4-6 4.18
Part 1, item 11 4.14
Part 1, item 12 4.15
Part 1, items 13-15 1.19
Part 1, item 15A 1.21
Part 1, item 15B 1.22
Part 1, items 16-65 1.19
Part 1, item 67 3.29
Part 1, items 68-69, 73-78, 81-83 4.8
Part 1, item 70 4.9
Part 1, items 71-72, 79-80 4.10
Part 1, item 77A 1.20
Part 1, items 84-86 4.16
Part 1, items 87-88 5.5
Part 1, item 89 5.5
Part 1, item 90 5.5
Part 1, item 91 5.5
Part 1, items 92-93 5.15
Part 1, item 93A 5.16
Part 1, item 94B 5.14
Part 1, item 94 5.5
Part 1, item 94A 5.5
Part 1, sub-items 94A(1) and (2) 5.9
Part 1, sub-item 94A(3) 5.12
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Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Part 1, sub-item 94A(4) 5.13
Part 1, sub-items 94A(5) and (6) 5.10
Part 1,sub- item 94A(7) 5.11
Part 1, sub-item 94A(8) 5.7
Part 1, item 95 5.17
Part 1, item 96 5.18
Part 1, item 97 5.19
Part 2, items 98-101 1.90
Part 2, items 102-104 1.91
Part 2, items 105-107 1.94
Part 2, item 108 1.95
Part 2, item 109 1.96
Part 2, item 110-111 1.45
Part 2, item 110 1.46
Part 2, item 110A 1.49
Part 2, item 112 1.31
Part 2, item 112A 1.50
Part 2, item 113 1.50
Part 2, item 114 1.50
Part 2, item 115 1.50
Part 2, item 116 1.24
Part 2, item 117 1.50
Part 2, item 118 1.97
Part 2, item 119A 1.50
Part 2, item 119B 1.40
Part 2, item 119C 1.83
Part 2, item 120 1.29
Part 2, items 121-122 1.44
Part 2, item 122A 1.33
Part 2, item 123 1.50
Part 2, item 124 1.96
Part 2, item 125 1.50
Part 2, item 125A 1.34
Part 2, item 126 1.50
Part 2, item 126A 1.50
Part 2, item 127 1.33
Part 2, item 128 1.34
80
Index
Part 2, item 129 1.36
Part 2, item 130 1.44
Part 2, item 131 1.47
Part 2, item 131A 1.50
Part 2, item 132 1.40
Part 2, item 134 1.33
Part 2, item 135 1.32
Part 2, item 136 1.50
Part 2, item 136A 1.50
Part 2, items 136B-136C 1.53
Part 2, items 137-138 1.25
Part 2, item 139 1.50
Part 2, item 140 1.29
Part 2, item 141 1.50
Part 2, item 142 1.34, 1.50
Part 2, item 143 1.50
Part 2, item 144 1.50
Part 2, item 145 1.96
Part 2, item 146 1.29, 1.31, 1.32
Part 2, items 147-149 1.34
Part 2, item 150 1.35
Part 2, items 151-153 1.43
Part 2, item 154 1.44
Part 2, item 155 1.48
Part 2, items 156-162 1.26
Part 2, items 163-170 1.38
Part 2, items 171-172 1.40
Part 2, items 173-173E 1.53
Part 2, item 174-174C 1.54
Part 2, item 174D 1.53
Part 2, item 174F-174G 1.56
Part 2, item 174G 1.53
Part 2, item 175-175A 1.58
Part 2, item 176 1.64
Part 2, item 177 1.68, 1.69
Part 2, item 178 1.58
Part 2, item 179-181 1.89
81
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Part 2, item 181 1.58, 1.59, 1.61, 1.62,
1.64, 1.66
Part 2, items 181A-185 1.85
Part 2, items 186-187 1.86
Part 2, items 187A- 188AB 1.88
Part 2, items 188AC-188A 1.97
Part 2, items 188A-189 1.43
Part 2, items 190-191 1.42
Part 2, items 191A-191B 1.98
Part 2, item 191 1.41
Part 2, item 192 1.43
Part 2, items 193A-193B 1.87
Part 2, item 193 1.41
Part 2, item 194 1.75, 1.78, 1.83
Part 2, items 195, 200-201 3.26
Part 2, items 196-197, 204-216 3.21
Part 2, items 198-199 3.12
Part 2, items 202- 203 3.23
Part 2, item 217 3.27
Part 2, item 218 3.18
Part 2, item 220 3.11
Part 2, items 221-223 3.15
Part 2, item 224 5.20
Part 2, item 224A 5.21
Part 2, item 224B 5.22
Part 2, item 225 5.23
Part 2, item 226 5.25
Part 3, items 227 - 232 1.20
Part 3, items 233 1.20
Part 3, items 234 and 235 1.20
Schedule 2: Taxation amendments
Bill reference Paragraph number
Item 1, section 9-10 of the GST Act 1999 2.127
Item 2, section 38-190 of the GST Act 1999 2.131
82
Index
Items 3 and 4, section 195-1 of the GST Act 1999 2.132
Items 3 to 6, subsection 195-1(1) of the GST Act 1999 2.134
Items 5 and 6, section 195-1 of the GST Act 1999 2.128
Item 7, subsection 136AB(2) of the ITAA 1936 2.35
Items 8 and 9, section 10-5 and 12-5 of the ITAA 1997 2.135
Items 10 and 47, section 70-12 and definition trading stock 2.101
subsection 995-1(1)
Item 11, subsection 70-30(6) 2.52
Items 12 and 13, subsection 70-110(2) 2.45
Items 14 and 15, sections 104-5, table item relating to CGT event 2.44
K1, and 104-205
Item 16, section 112-97 2.54
Item 17, section 118-15 2.100
Item 18, section 230-481 2.103
Item 19, section 420- 10 and item 46, definition registered emissions 2.20
unit, subsection 995-1(1)
Item 19, section 420-12 2.22
Item 19, subsection 420-12(2) 2.23
Item 19, section 420- 15 2.27
Item 19, paragraph 420- 15(3)(a) 2.28
Item 19, paragraph 420- 15(3)(aa) 2.28
Item 19, paragraph 420- 15(3)(b) 2.28
Item 19, subsection 420- 15(4) 2.28
Item 19, subsections 420- 15(4) and (5) 2.29
Item 19, subsection 420-15(3) 2.98
Item 19, subsections 420- 15(4), (5) and (5A) 2.30
Item 19, subsections 420-15(4), (5) and (5A) 2.97
Item 19, subsection 420- 15(5) 2.28
Item 19, subsection 420- 15(5A) 2.28
Item 19, subsection 420-15(6) 2.31
Item 19, subsections 420-15(6) and 420-45(5) 2.109
Item 19, subsection 420-20(1) 2.32
Item 19, subsection 420-20(2) 2.34
Item 19, subsection 420-20(3) 2.33
Item 19, section 420-21 2.37, 2.40, 2.42
Item 19, subsection 420-21(1) 2.43
Item 19, subsection 420-21(2) 2.41
Item 19, section 420-22 2.111
83
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2010
Item 19, subsections 420-25(3), 420-40(6) and 420-45(4) 2.108
Item 19, section 420-25 2.47
Item 19, section 420-30 2.48
Item 19, section 420-35 2.51
Item 19, subsection 420-40(1) 2.55, 2.56, 2.59, 2.61
Item 19, subsection 420-40(1) 2.57
Item 19, subsections 420-40(1) and (6 ) 2.60
Item 19, subsections 420-40(2) and (3) 2.62
Item 19, subsections 420-40(4) and (5) 2.63
Item 19, section 420-41 2.110
Item 19, section 420-42 2.64
Item 19, subsection 420-45(1) 2.66
Item 19, subsection 420-45(2) 2.67
Item 19, subsection 420-45(3) 2.68
Item 19, section 420-50 2.70
Item 19, section 420-51, subsections 420-55(1) and (2) and 2.71
420-57(1) and (2)
Item 19, section 420-52 2.81, 2.82
Item 19, section 420-53 2.83
Item 19, section 420-54 2.84
Item 19, subsection 420-55(3) 2.73
Item 19, subsections 420-57(3), (4) and (5) 2.74
Item 19, subsections 420-55(4) and (5) and 420-57(7) and (8) 2.72
Item 19, subsections 420-57(5) and (6) 2.75
Item 19, section 420-58 2.87, 2.89
Item 19, subsections 420-60(1) and (2) 2.90
Item 19, section 420-65 2.93
Item 19, subsections 420-65(1), (2) and (7) 2.94
Item 19, subsection 420-65(6) 2.99
Item 19, section 420-70 2.93
Item 19, subsections 420-70(1) and (2) 2.95
Item 19, subsection 420-70(3) 2.96
Item 20, paragraph 701-10(5)(a) 2.119
Items 21 to 24, section 701-25 2.121
Items 25-28, section 701-35 2.113
Item 29, subsection 701-55(3A) 2.118
Item 30, subsection 705-30(1A) 2.117
84
Index
Items 31-33, section 705-40 2.116
Items 34-38, sections 705-57, 705-163, 705-240 and 713-225 2.124
Item 39, item 2A of the table in subsection 715-660(1) 2.120
Item 40, subsection 719-165 2.114
Items 40A to 50, subsection 995-1(1) 2.134
Item 42, definition cost of a registered emission unit subsection 995- 2.76
1(1), item 19, section 420-60
Item 45, definition international emissions unit subsection 995-1(1) 2.38
Item 50A 2.138, 2.140, 2.141
Item 51, subsection 45-120(5) of the TAA 1953 2.126
85