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Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2010

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2008-2010

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

Carbon Pollution Reduction Scheme (CPRS Fuel Credits) bill 2010



carbon pollution reduction scheme (cprs fuel credits) (consequential amendments) bill 2010



Excise Tariff Amendment (Carbon Pollution Reduction Scheme) bill 2010



CUSTOms tariff amendment (carbon pollution reduction scheme) bill 2010

 

 

EXPLANATORY MEMORANDUM

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP, and the

Minister for Home Affairs, the Hon Brendan O’Connor MP)

 



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1            Adjustment of fuel tax rates — excise duty..................... 9

Chapter 2            Adjustment of fuel tax rates — customs duty............... 15

Chapter 3            CPRS fuel credits.............................................................. 19

Chapter 4            CPRS fuel credits — consequential amendments..... 27



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ASEAN FTA Act

ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009

ATO

Australian Taxation Office

average unit charge

six-month average Australian emissions unit auction charge

BAS

business activity statement

CNG

compressed natural gas

CO 2 -e

carbon dioxide equivalent

Commissioner

Commissioner of Taxation

cpl

cents per litre

CPRS Bill

Carbon Pollution Reduction Scheme Bill 2010

CPRS fuel credit

Carbon Pollution Reduction Scheme fuel tax credit

CPRS Fuel Credits Bill

Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2010

CPRS Fuel Credits (Consequential Amendments) Bill

Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2010

Customs Tariff Act

Customs Tariff Act 1995

Customs Tariff Amendment Bill

Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010

emissions factor

carbon dioxide-equivalent (CO 2 -e) emissions per litre of diesel; equal to 0.0027 tonnes per litre

Energy Grants Act

Energy Grants (Credits) Scheme Act 2003

Excise Tariff Act

Excise Tariff Act 1921

Excise Tariff Amendment Bill

Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010

Fuel Tax Act

Fuel Tax Act 2006

gaseous fuels

LPG, LNG, CNG

ITAA 1997

Income Tax Assessment Act 1997

LNG

liquid natural gas

LPG

liquid petroleum gas

Scheme

Carbon Pollution Reduction Scheme

TAA 1953

Taxation Administration Act 1953

White Paper

Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future , White Paper, December 2008



Fuel tax adjustment arrangements

The Government recognises that people have limited flexibility to respond quickly to changes in fuel prices but that, over time, transport choices can respond to price changes.  In the White Paper, Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future , the Government outlined transitional arrangements for fuels to give households and businesses time to adjust to the Carbon Pollution Reduction Scheme (Scheme).

The Government will provide ‘cent-for-cent’ reductions in fuel taxes as a transitional measure.  It will also provide transitional assistance to agriculture, forestry, fishing and heavy on-road transport industries.  Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed natural gas (CNG) will also receive assistance. 

The Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2010 (CPRS Fuel Credits Bill), the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2010 (CPRS Fuel Credits (Consequential Amendments) Bill), the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Excise Tariff Amendment Bill) and the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Customs Tariff Amendment Bill) implement these commitments. 

Current fuel tax arrangements

Unlike other emissions sources, fuels are currently subject to their own tax regime. 

The fuel tax regime consists of excise on certain domestically manufactured fuels and excise-equivalent customs duty on the corresponding imported fuels.  These include petrol, diesel, fuel oil, kerosene, benzene, toluene, xylene, biodiesel and fuel ethanol.  A general fuel tax rate of 38.143 cents per litre (cpl) applies to these, and a special rate of 2.854 cpl applies to kerosene and gasoline used for domestic air flights.

LPG, LNG, CNG and certain other fuels are currently outside the fuel tax regime. 

The fuel tax regime also provides fuel tax credits to remove or reduce the incidence of fuel tax from business inputs so that fuel tax falls primarily on consumers of fuel for transport on public roads.  Consequently, most businesses effectively do not pay fuel tax, other than for fuel used in light vehicles on-road or, to the extent of the road user charge, for heavy vehicles on-road. 

Fuel tax adjustment

Initial fuel tax cut

The Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 and the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 will cut fuel taxes on a ‘cent-for-cent’ basis to offset the initial price impact on fuel of introducing the Scheme.  At the end of a three-year transitional period, the Government will review this adjustment mechanism.

These Bills will initially reduce excise and excise-equivalent customs duty (fuel tax) on 1 July 2011 for all fuels currently subject to the general rate of 38.143 cpl.  Based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne, fuel tax will be reduced to 35.688 cpl on 1 July 2011. 

From 1 July 2012, any further fuel tax cuts will be based on the average Australian emissions unit auction charge (‘average unit charge’) established in the previous six months through emissions unit auctions. 

As different fuels emit different amounts of carbon when they burn, their prices will increase according to the volume of their emissions.  To minimise compliance costs, an across-the-board fuel tax cut will be made, based on the impact of the Scheme on diesel prices.  This will provide ‘cent-for-cent’ assistance for diesel users. 

Because diesel emits more carbon than petrol, the fuel tax cut will provide more than ‘cent-for-cent’ assistance for petrol users, which make up the majority of motorists.  However, diesel use is becoming more common as fuel and vehicle standards improve.  Basing the fuel tax cut on diesel will ensure that the Government’s ‘cent-for-cent’ commitment is delivered for both fuels. 

Periodic adjustment mechanism

The Government will periodically assess the adequacy of the initial fuel tax cut and adjust fuel taxes accordingly.  At the end of the three years, the Government will review this adjustment mechanism. 

Following the period of the emissions unit charge being fixed at $10 per tonne (1 July 2011 to 30 June 2012), the Excise Tariff Amendment Bill and the Customs Tariff Amendment Bill will introduce a mechanism to automatically assess and adjust, if needed, the fuel tax rate every six months.  The assessment will be based on the average emissions unit charge for the previous six months.  If the average unit charge exceeds the initial fixed Carbon Pollution Reduction Scheme unit charge of $10 per tonne or, subsequently, the average unit charge used for the previous fuel tax reduction, there will be a further fuel tax cut.  Any reductions will take effect on 1 January and 1 July each year.

Six-monthly assessment strikes a balance between ensuring that the ‘cent-for-cent’ fuel tax cut reflects unit charge movements and minimising compliance costs for industry. 

The final reduction, if needed, will take effect from 1 July 2014.  Reductions in fuel tax made during this transition period will become permanent after three years. 

Assistance to business

Fuel tax credits remove or reduce the incidence of effective fuel tax from business inputs.  They ensure that most businesses do not pay effective fuel tax.  Therefore, reducing the rate of fuel tax will not benefit those businesses.  The Government is introducing Carbon Pollution Reduction Scheme fuel tax credits (‘CPRS fuel credits’) to provide transitional assistance for the agriculture, forestry and fishing industries and heavy on-road vehicle users. 

From 1 July 2011, based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne, the value of the CPRS fuel credit will be 2.455 cpl for the first year.  The amount of the CPRS fuel credit will change if the fuel tax rate is reduced from 1 July 2012.

The Australian Taxation Office (ATO) will administer the CPRS fuel credit, and businesses will claim the CPRS fuel credit on their business activity statements. 

The CPRS Fuel Credits Bill and the CPRS Fuel Credits (Consequential Amendments) Bill implement the CPRS fuel credits program.

Assistance to the agriculture, forestry and fishing industries

Agriculture, forestry and fishing businesses will receive a CPRS fuel credit, which will ensure that these businesses receive assistance equivalent to the full benefit of the fuel tax cut. 

Agricultural, forestry and fishing activities will be eligible for the CPRS fuel credit from 1 July 2011 to 30 June 2014.  The Government will review this measure after the three years as part of the review of the fuel tax adjustment mechanism. 

Assistance to heavy on-road transport vehicle users

Heavy on-road transport users will be eligible for a CPRS fuel credit to offset the initial price impact on fuel from introducing the Scheme.  This CPRS fuel credit will be provided for the year beginning 1 July 2011 (when the emissions unit charge is fixed at $10 per tonne) and, based on current taxation arrangements, will be equal to 2.455 cpl of eligible taxable fuel.  The Government will review this measure after one year. 

Assistance to LPG, CNG and LNG fuel users

The CPRS fuel credit program will also provide transitional assistance for LPG, CNG and LNG that reflects the lower emissions of those fuels. 

LPG, CNG and LNG are alternative transport fuels that compete with petrol and diesel.  LPG is Australia’s most widely used alternative fuel, comprising over 5 per cent of the transport fuel market. 

LPG, CNG and LNG are not currently subject to fuel tax, so their users will not benefit from fuel tax cuts.  Instead, a CPRS fuel credit will be available to liable entities under the Scheme that supply, or apply to their own use, gaseous fuel suitable for transport use. 

CNG and LNG fuel suppliers will be provided with CPRS fuel credits until 30 June 2012.  This treatment is the same as heavy on-road transport as these fuels are predominantly used for this purpose.  The Government will review this measure after one year. 

CPRS fuel credits will cease for LPG on 30 June 2014 after which the Government will review this program.

The volume of emissions from these fuels is substantially lower than the volume from petrol and diesel and therefore the carbon price impact on them will be lower.  To reflect this, the amount of credit will be less than the full amount of the fuel tax cut.  This will maintain the relative prices of these fuels against petrol and diesel. 

From 1 July 2011, based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne from 1 July 2011 for one year, CNG will receive a CPRS fuel credit of 1.915 cents per cubic metre (78 per cent of the full credit), LNG will receive a credit of 1.228 cpl (50 per cent of the full CPRS fuel credit).  LPG, which has the three-year assistance period, will receive a credit of 1.645 cpl (67 per cent on the full CPRS fuel credit) for the first year after which the credit will be adjusted in accordance with increases in the emissions unit charge.

Date of effect These provisions commence on 1 July 2011 assuming that section 3 of the Carbon Pollution Reduction Scheme Bill 2010 (CPRS Bill) commences on that date.

Proposal announced The Scheme fuel tax adjustment arrangements were announced in the White Paper, Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future, on 17 December 2008.  On 4 May 2009 the Government announced that the start dates for the Scheme would be 1 July 2011 and that, for the first year of the Scheme, the emissions unit charge would be fixed at $10 per tonne.  The extension of eligibility for CPRS fuel credits to the forestry industry was announced by the Government on 24 November 2009.

Financial impact This measure will have the following implications:

 

2009-10

2010-11

2011-12

2012-13

2013-14

Revenue

($m)

 

 

 

 

 

Australian Customs and Border Protection Service

-

-

-$30m

-$60m

-$60m

ATO

-

-

-$1,150m

-$3,110m

-$3,500m

Total

-

-

-$1,180m

-$3,170m

-$3,560m

Expense ($m)

 

 

 

 

 

ATO

-

-

-$160m

-$940m

-$1,000m

Total

-

-

-$160m

-$940m

-$1,000m

Summary of regulation impact statement

The regulation impact of the fuel tax adjustment arrangements were considered as part of the omnibus Scheme statement which can be found attached to the explanatory memorandum to the CPRS Bill.



C hapter 1     

Adjustment of fuel tax rates — excise duty

Outline of chapter

1.1                   The Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Excise Tariff Amendment Bill) amends the Excise Tariff Act 1921 (Excise Tariff Act) to cut the fuel tax rate by 2.455 cents per litre (cpl) on 1 July 2011 and introduce the automatic fuel tax reduction mechanism outlined in the Government’s White Paper, Carbon Pollution Reduction Scheme: Australia’s Low Carbon Future (White Paper) .

Context of amendments

1.2                   From commencement the Carbon Pollution Reduction Scheme (Scheme) will cover transport emissions.

1.3                   However, the Government recognises that people have limited flexibility to respond quickly to changes in fuel prices but that, over time, transport choices can respond to price changes.

1.4                   To give households and businesses time to adjust to the Scheme, the Government outlined transitional arrangements for fuels in the White Paper. 

1.5                   The Government will cut fuel taxes on a ‘cent-for-cent’ basis to offset the initial price impact on fuel of introducing the Scheme.  For three years, the Government will assess periodically the adequacy of this measure and adjust the offset accordingly.  At the end of the three years, the Government will review this adjustment mechanism. 

1.6                   The tax cut for fuel will be based on the expected rise in the price of diesel flowing from the Scheme.  Different fuels emit different amounts of carbon when they burn and their prices will increase according to the volume of their emissions.  To minimise compliance costs, the fuel tax cut will be made ‘across the board’ to currently taxed fuels.  This will ensure there is ‘cent-for-cent’ assistance for diesel users. 

1.7                   Diesel emits more carbon than petrol on a per litre basis so the fuel tax cut will provide more than ‘cent-for-cent’ assistance for petrol users, which make up the majority of motorists.  However, diesel use is becoming more common as fuel and vehicle standards improve.  Basing the fuel tax cut on diesel will ensure that the Government’s ‘cent-for-cent’ commitment is delivered for the most common fuels used by households.

1.8                   Fuel tax currently consists of excise duty on domestically manufactured fuels and excise-equivalent customs duty on imported fuels.  Fuel tax is predominantly applied at a rate of 38.143 cpl across the range of fuels including petrol, diesel, kerosene, fuel oil, heating oil, biodiesel and fuel ethanol.

1.9                   A special rate of 2.854 cpl applies to gasoline and kerosene for use as fuels in aircraft.  This rate is not imposed for general revenue raising reasons.  Instead, it is a method of cost recovery for various services and oversight of the aviation industry provided by the Civil Aviation Safety Authority and Airservices Australia.  Due to the purpose of the tax rate applying to these fuels, they will not receive fuel tax reductions as part of the transition to the Scheme.

1.10               Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed natural gas (CNG) are currently not subject to fuel tax.

1.11               The Government will also provide transitional assistance to agriculture, forestry, fishing and heavy on-road transport industries.  LPG, LNG and CNG will also receive assistance through this means.  Further detail on these aspects of the transitional arrangements is contained in Chapter 3.

Summary of new law

1.12               This Bill makes an across the board reduction to fuel tax on 1 July 2011 for all fuels currently subject to the general rate of 38.143 cpl to offset the impact on fuel prices of the introduction of the Scheme. 

1.13               Based on current taxation arrangements, the fixing of the emissions unit charge for the first year at $10 per tonne will result in an offsetting reduction to fuel tax of 2.455 cpl for the period 1 July 2011 to 30 June 2012.

1.14               Beginning 1 July 2012, the adequacy of the fuel tax cut(s) will be automatically assessed every six months on 1 July and 1 January based on the average emission unit charge of the preceding six months.  On 1 July 2014, the Government will make a final assessment and, if needed, a final fuel tax cut will take effect from that date. 

Comparison of key features of new law and current law

New law

Current law

An initial reduction of fuel tax for fuels currently subject to 38.143 cpl to 35.688 cpl on 1 July 2011.

Beginning 1 July 2012 and finishing on 1 July 2014, automatic adjustments of the fuel tax rates will take place every six months to offset increases in the emissions unit charge. 

No adjustment provisions.

Detailed explanation of new law

1.15               On 1 July 2011, a fuel tax reduction will occur with the commencement of the Scheme.  Reflecting the introduction of the emissions unit charge fixed at $10 per tonne on 1 July 2011 for one year, fuel tax will be correspondingly reduced by 2.455 cpl to 35.688 cpl.  This reduction of 2.455 cpl is calculated by referencing the $10 per tonne emissions unit charge with the emission factor for diesel.  [Schedule 1, item 5, Excise Tariff Amendment Bill]

1.16               After the fixed emission unit price of $10 per tonne lapses on 30 June 2012, the need for further reductions will be assessed every six months beginning on 1 July 2012 and every 1 January and 1 June thereafter up to and including 1 July 2014.  If there is a need for an adjustment that date is defined as a ‘rate reducing day’.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.17               The Excise Tariff Amendment Bill introduces a new section 6AA to provide the subsequent automatic reductions conditional on increases in the emissions unit charge.  Subsection 6AA(1) of item 1 of Schedule 1 to the Excise Tariff Amendment Bill defines the following terms used in the remaining provisions of the new section 6AA:

•        ‘6-month average Australian emissions unit auction charge’;

•        ‘notional rate amount’; and

•        ‘relevant rate’.

These terms are explained in detail below.

1.18               The fuels subject to the automatic reductions are petroleum condensate and crude oils not used as refinery feedstock, gasoline (petrol) other than for use as fuel in aircraft, diesel, heating oil, kerosene other than for use as fuel in aircraft, fuel oil, denatured ethanol for use as fuel in an internal combustion engine, biodiesel, liquid aromatic hydrocarbons, mineral turpentine, white spirit, petroleum products not elsewhere classified and blends of the above products or blends of the above products with non-fuel products.  The ‘relevant rate’ is the rate of duty applying to these fuels.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.19               Denatured ethanol for use as fuel in an internal combustion engine and biodiesel are provided with fuel tax reductions like other fuels subject to the 38.143 cpl tax rate in order to maintain simplicity and consistency in the fuel tax system.  The offsetting assistance these fuels currently receive will be reduced in line with any fuel tax reductions.  Furthermore, these fuels are zero-rated under the Scheme and so producers and manufacturers will not face the Scheme obligations against the CO 2 -e emissions in these fuels. 

1.20               Information on the six-month average emissions unit auction charge will be published by the Australian Climate Change Regulatory Authority in accordance with clause 271 of the Carbon Pollution Reduction Scheme Bill 2010 (CPRS Bill).  The need for further reductions is based on the difference between the average emissions unit charge for the preceding six months published by the Australian Climate Change Regulatory Authority during the month preceding that potential ‘rate-reducing day’ and the average emissions unit charge published in the month before the previous rate-reducing day (or $10 if no rate reductions have occurred since 1 July 2011).  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.21               If the difference is less than zero then the average emissions charge has fallen compared to the previous reduction.  In this scenario, as announced in the White Paper, the fuel tax rate will not change.  That is, there will be no rate reducing day for that six-month period.  If the amount is greater than zero then the average unit charge has risen above the previous reduction and households and businesses are facing higher fuel costs which will be offset by a further reduction in the fuel tax rate which takes effect from that rate reducing day.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.22               The amount of the fuel tax reduction will equal the difference between the average unit charges (if positive) multiplied by 10/11 (to remove the goods and services tax component of the price) and then multiplied by 0.0027.  The 0.0027 multiplier is the carbon dioxide equivalent (CO 2 -e) emissions per litre of diesel fuel in transport uses (emissions factor).  The multiplier has been determined in accordance with the National Greenhouse and Energy Reporting (Measurement) Determination 2008 [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.23               The emissions factor for diesel fuel is used as the basis for the initial and any subsequent reductions because it will ensure that the Government’s ‘cent-for-cent’ commitment is delivered for the most common fuels used by households. 

1.24               If a rate reduction as outlined in paragraphs 1.20 to 1.22 is made on a rate-reducing day then the new rate of fuel tax is substituted for the existing rate.  The new rate is calculated as the relevant rate of duty applying to the fuel less the rate reduction calculated according to subsection 6AA.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act)]

1.25               This ensures that the Government’s ‘cent-for-cent’ fuel tax reduction commitment is met by reducing the existing rate of duty commensurate with the increase in the average unit charge.

1.26               The Excise Tariff Amendment Bill also amends the existing subsection 6G(1) in the Excise Tariff Act to ensure that the adjusted rates of fuel tax that apply as a result of the reductions also apply to blended fuels.  The current reference to ‘$0.38143’ is replaced by a ‘notional rate amount’.  If the calculation gives rise to a negative amount, the duty payable is taken to be zero.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

1.27               The blended fuels to which section 6G applies are blends of petrol and ethanol, diesel and ethanol, diesel and biodiesel and blends of any of the fuel products classified to item 10 of the Schedule to the Excise Tariff Act that are not elsewhere classified.  The automatic adjustment of the ‘notional rate amount’ ensures that the changes to the fuel tax rates applying to the unblended fuels are taken into account when calculating the applicable duty when they are blended together.

1.28               The Excise Tariff Amendment Bill also requires that the Commissioner of Taxation (Commissioner) publish via a public notice in the Gazette the substituted rate, as per subsection 6AA(6), or substituted ‘notional rate amount’, as per subsection 6AA(7), as well as the goods the substituted rate(s) apply to.  Subsections 6AA(6A) and 6AA(7A) respectively require the Commissioner of Taxation make available public notices gazetted under subsections 6AA(6) and 6AA(7) on the website of the Australian Taxation Office.  Consistent with the publication rules for other excisable products, the Commissioner will publish the new rates as soon as practicable after being advised by the Australian Climate Change Regulatory Authority of the average auction price.  [Schedule 1, item 1, Excise Tariff Amendment Bill, section 6AA of the Excise Tariff Act]

Application and transitional provisions

1.29               The adjustment provisions commence on 1 July 2011 assuming that section 3 of the CPRS Bill commences on the date.

 



C hapter 2     

Adjustment of fuel tax rates — customs duty

Outline of chapter

2.1                   This chapter outlines the operation of the amendments to the Customs Tariff Act 1995 (Customs Tariff Act) by the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Customs Tariff Amendment Bill).

Context of amendments

2.2                   The Government will cut fuel taxes on a ‘cent-for-cent’ basis to offset the initial price impact on fuel of introducing the Carbon Pollution Reduction Scheme (Scheme).  For three years, the Government will assess periodically the adequacy of this measure and adjust the offset accordingly.  At the end of the three years, the Government will review this adjustment mechanism. 

2.3                   The tax cut for fuel will be based on the expected rise in the price of diesel flowing from the Scheme.  Different fuels emit different amounts of carbon when they burn and their prices will increase according to the volume of their emissions.  To minimise compliance costs, the fuel tax cut will be made ‘across the board’ to fuels that are currently taxed.  This will ensure there is ‘cent-for-cent’ assistance for diesel users. 

2.4                   Diesel emits more carbon than petrol on a per litre basis so the fuel tax cut will provide more than ‘cent-for-cent’ assistance for petrol users, which make up the majority of motorists.  However, diesel use is becoming more common as fuel and vehicle standards improve.  Basing the fuel tax cut on diesel will ensure that the Government’s ‘cent-for-cent’ commitment is delivered for the most common fuels used by households.

2.5                   Fuel tax currently consists of excise duty on domestically manufactured fuels and excise-equivalent customs duty on imported fuels.  Fuel tax is predominantly applied at a rate of 38.143 cpl across the range of fuels including petrol, diesel, kerosene, fuel oil, heating oil, biodiesel and fuel ethanol.  As outlined in Chapter 1, the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Excise Tariff Amendment Bill) sets out a mechanism to adjust this rate.

Summary of new law

2.6                   The amendments introduce a mechanism to substitute the rate of excise equivalent customs duty on fuels when a reduction is made to the excise rate under the Excise Tariff Amendment Bill.

Comparison of key features of new law and current law

New law

Current law

Substitution of excise-equivalent duty rates on fuel subheadings when the automatic adjustments of fuel tax rates in the excise tariff are made.

No substitution provisions if excise rates change.

Detailed explanation of new law

2.7                   A new section 19A is inserted into the Customs Tariff Act to ensure that the reductions made to the excise rates on fuels also apply to the relevant imported products.  Any ad valorem duty rate that applies to the imported products will be unchanged. 

2.8                   Where a relevant rate, as defined in the Excise Tariff Amendment Bill, is substituted on 1 July 2011 or a subsequent ‘rate-reducing day’, then section 19A will apply the same rate to the subheadings listed in the table.  The substitution will be made to the excise-equivalent customs duty rates for these subheadings in Schedules 3, 5, 6, 7, 8 and subitem 50(1A) in Schedule 4 to the Customs Tariff Act.  Only the rate of excise-equivalent duty (that is, the non- ad valorem) component of the duty will be substituted.  [Schedule 1, item 1, Customs Tariff Amendment Bill]

2.9                   Schedule 2 amends the Customs Tariff Amendment (ASEAN-Australia-New Zealand Free Trade Agreement Implementation) Act 2009 (Act No. 98 of 2009) (ASEAN FTA Act).  The commencement provisions of this Act contain a reference to the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Act 2009 .  The amendment in Schedule 2 replaces ’2009’ with ’2010’, so that the ASEAN FTA Act correctly refers to the Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Act 2010 .   [Schedule 2, item 1, Customs Tariff Amendment Bill]

Application and transitional provisions

2.10               The amendments to the Customs Tariff Act will commence on 1 July 2011 assuming that section 3 of the Carbon Pollution Reduction Scheme Bill 2010 commences on that date.



C hapter 3     

CPRS fuel credits

Outline of chapter

3.1                   This chapter provides:

•        an overview of the Carbon Pollution Reduction Scheme fuel tax credit (CPRS fuel credit) program; and 

•        an outline of key concepts for the program such as the amount of entitlements and administration of the program.

3.2                   CPRS fuel credits will be provided through the terms of the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2010 (CPRS Fuel Credits Bill) .

Context of the new law

3.3                   The Carbon Pollution Reduction Scheme (Scheme) will include transport fuels.  Therefore the importers, manufacturers or producers of transport fuels will face the Scheme emissions unit obligation against these fuels which is expected to be passed on as an increase in the price of the fuel. 

3.4                   The Government recognises that people have limited flexibility to respond quickly to changes in fuel prices but that, over time, transport choices can respond to price changes.  To give households and businesses time to adjust to the Scheme, the Government outlined transitional arrangements for fuels in the Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future , White Paper, December 2008 .

3.5                   Households will benefit directly from ‘cent-for-cent’ reductions to fuel tax as outlined in Chapter 1.

3.6                   The Government will provide assistance to the agriculture, forestry, fishing and heavy on-road transport industries.  These businesses receive fuel tax credits to offset the fuel tax on their business inputs so they do not benefit from the ‘cent-for-cent’ reduction in fuel tax.  The Government therefore is establishing the ‘CPRS fuel credit’ program to provide credits to offset the impact of the Scheme emissions unit charge for these industries. 

3.7                   Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed natural gas (CNG) are alternative transport fuels.  These fuels will face a Scheme emissions unit obligation, however, as LPG, LNG and CNG are currently outside of the fuel excise system they will not benefit from the fuel tax reductions applying to other fuels.  This would affect the fuel market by decreasing the price of diesel and petrol relative to these fuels.  The CPRS fuel credit program will provide credits to maintain the price relativities of gaseous fuels in respect of diesel and petrol in the fuel market.

Summary of new law

3.8                   The CPRS fuel credits will provide transitional assistance to eligible industries and fuels to allow households and businesses to adjust to the Scheme.  CPRS fuel credits will be provided for a transitional period following the introduction of the Scheme.

Comparison of key features of new law and current law

New law

Current law

The legislation will provide a CPRS fuel credit to certain industries and fuels for one or three years.

Agriculture, forestry and fishing businesses will receive CPRS fuel credits for three years.

‘Agriculture’, ‘forestry’ and ‘fishing operation’ activities that meet the definition of the Energy Grants (Credits) Scheme Act 2003 (Energy Grants Act) will receive a full CPRS fuel credit equal to the fuel tax reductions.

Incidental agriculture, forestry and fishing activities will receive a CPRS fuel credit equal to half the full CPRS fuel credit amount. 

Heavy on-road transport will receive full CPRS fuel credits for one year.

LPG transport fuel will receive a CPRS fuel credit for three years equal to 67 per cent of the full CPRS fuel credit.

There is no CPRS fuel credit program.

CNG and LNG transport fuel will receive CPRS fuel credits for one year.  Respectively, the amounts of the credits are 78 per cent and 50 per cent. 

There is no CPRS fuel credit program.

Detailed explanation of new law

3.9                   The CPRS Fuel Credits Bill will establish a new ‘CPRS fuel credit’ program for eligible businesses and eligible gaseous fuels suppliers.  The CPRS fuel credits will offset the impact of the Scheme for specific fuel users and fuels that the Government wishes to assist for a transitional period following the introduction of the Scheme.  Currently these users and fuels effectively do not pay any fuel tax (with the exception of incidental agricultural, forestry and fishing activities — see paragraph 3.22) and therefore do not benefit from the fuel tax reductions outlined in Chapter 1.

3.10               The CPRS fuel credit is to be administered by the Australian Taxation Office and claimed on the business activity statement (BAS) in the same manner as fuel tax credits.  Accordingly, administration of CPRS fuel credits is aligned with the provisions of the Fuel Tax Act 2006 (Fuel Tax Act) and the Taxation Administration Act 1953.

Amount of the CPRS fuel credit

3.11               Division 7 sets out the rules for calculating the amount of the CPRS fuel credit.  The CPRS fuel credit amount is calculated with reference to the amount of the fuel tax reduction(s) made under the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (Excise Tariff Amendment Bill).  (Paragraphs 1.20 to 1.22 outline how the fuel tax reduction amount is calculated.)  [Chapter 2, Part 2-1, Division 7, CPRS Fuel Credits Bill]

3.12               The term ‘use’ is intended to take its ordinary meaning and apply in a broad sense, as long as the use of the fuel is within the confines of the conduct of carrying on an enterprise.  For example, ‘use’ will include use of fuel that is acquired or manufactured in, or imported into Australia by a taxpayer, but actually used by a contractor in carrying on the taxpayer’s enterprise as long as the taxpayer is not taken to have sold the fuel to the contractor as part of their contract.

3.13                 Fuel is ‘used’ if it ceases to exist after an action to use it, either as a fuel or in the production of another thing.  As such, a sale of fuel is not a use of the fuel and a taxpayer will not be considered to have used fuel if they sell the fuel to another entity.  ‘Use’ will also include the loss of fuel through evaporation and temperature changes in the course of carrying on a taxpayer’s enterprise. 

3.14               The CPRS fuel credit amounts will be adjusted automatically with the adjustments to the fuel tax made under the Excise Tariff Amendment Bill.  These adjustments are also reflected in the Customs Tariff Amendment Bill.  The relevant rate of duty applicable to the CPRS fuel credit claim is the rate of duty specified in subitem 10.10 (diesel) of the Schedule to the Excise Tariff Act 1921 at the time the fuel was acquired, manufactured or imported, or, in the case of fuels subject to sections 6-25, 6-30 or 6-35, supplied or applied for own use.  [Division 7, section 7-5, Division 8, section 8-5, CPRS Fuel Credits Bill]

3.15               While liquid fuels are measured in litres, CNG is measured volumetrically by the cubic metre.  The ‘adjusted volume of fuel’ is used to accommodate both measures of volume.  [Division 7, section 7-5, CPRS Fuel Credits Bill]

CPRS fuel credits — eligible fuels

3.16               Fuels for which agriculture, forestry, fishing and heavy on-road transport businesses are entitled to CPRS fuel credits are specified in section 13-1 and include diesel, petrol, fuel oil, heating oil, and kerosene.  Eligible businesses using fuel ethanol and biodiesel are not entitled to a CPRS fuel credit for the fuel because these fuels are zero-rated in the Scheme and, accordingly, producers will not face a Scheme emissions unit obligation on the fuel which is passed on to consumers.  Where blends are used, the amount is pro-rated to the proportion of the fuel that does not consist of ethanol or biodiesel unless the blend meets the fuel standard under the Fuel Quality Standards Act 2000 for petrol or diesel, as the case requires.  [Division 7, section   3, CPRS Fuel Credits Bill]

3.17               Businesses with industry-based CPRS fuel credit entitlements using LPG, LNG and CNG are not entitled to CPRS fuel credits for these fuels.  These fuels have separate entitlements as outlined in paragraphs 3.27 to 3.31 which are expected to have been passed on to the consumer.  [Items 6 to 8, CPRS Fuel Credits Bill, Division 7, section 7-5]

CPRS fuel credits — industry-based entitlements

Agriculture, forestry and fishing businesses

3.18               Sections 6-5, 6-10, 6-15 and 6-20 of the CPRS Fuel Credits Bill establish the eligible businesses for the CPRS fuel credit program, and the transitional period for which the program will apply to these industries.  [Sections 6-5, 6-15, 6-20, CPRS Fuel Credits Bill]

3.19               Agriculture, forestry and fishing operations will be entitled to CPRS fuel credits where they undertake eligible business activities for the period 1 July 2011 to 30 June 2014.  ‘Agriculture’ is defined as having the same meaning as in the Energy Grants Act, excluding carbon sequestration activities. ‘Forestry’ is defined as having the same meaning as in the Energy Grants Act, excluding carbon sequestration activities.  ‘Fishing operations’ are also defined according to the Energy Grants Act.  [Division 6, section 6-5, CPRS Fuel Credits Bill]

3.20               Activities that meet these definitions will be entitled to a full CPRS fuel credit equal to the amount of the fuel tax reductions.  Based on current taxation arrangements, for the period the Government has fixed the emissions unit charge at $10 per tonne, this credit will equal 2.455 cents per litre (cpl).  [Division 6, section 6-5, CPRS Fuel Credits Bill]

3.21               Section 6-5 of the CPRS Fuel Credits Bill excludes vehicles travelling on public roads from eligibility — where these vehicles are heavy on-road transport they have a separate entitlement under section 6-15.  [Division 6, section 6-5, CPRS Fuel Credits Bill]

3.22               Section 6-10 of CPRS Fuel Credits Bill provides the CPRS fuel credit program to activities incidental to the agriculture, forestry and fishing industries.  These incidental activities currently receive 50 per cent of the fuel tax credit under the Fuel Tax Act 2006 (Fuel Tax Act) until 30 June 2012 and will receive the full fuel tax credit thereafter.  Therefore, under section 7-5, incidental activities will receive a CPRS fuel credit of 50 per cent of the full CPRS fuel credit while the reduced fuel tax credit rate applies.  Thereafter, these incidental activities will be entitled to the full CPRS fuel credit until the end of the transitional assistance period on 30 June 2014.  [Division 6, section 6-10, CPRS Fuel Credits Bill]

3.23               The Government will review the assistance for agriculture, forestry and fishing businesses after three years, as part of the review of the fuel tax adjustment mechanism.

Heavy on-road transport

3.24               For one year beginning 1 July 2011, business users of vehicles on-road with a gross vehicle mass exceeding 4.5 tonnes will be entitled to a CPRS fuel credit for eligible taxable fuels.  The amount of the CPRS fuel credit will be equal the fuel tax reductions.  [Division 6, section 6-15, CPRS Fuel Credits Bill]

3.25               From 1 July 2011, based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne, the CPRS fuel credit heavy on-road transport users will be entitled to the full CPRS fuel credit of 2.455 cpl for the period 1 July 2011 to 30 June 2012.

3.26               In addition, vehicles with a gross vehicle mass of 4.5 tonnes used on-road are entitled to a CPRS fuel credit if they were purchased prior to 1 July 2006.  Businesses operating these vehicles are entitled to a fuel tax credit for these vehicles so they effectively do not pay fuel tax.  [Division 6, section 6-20, CPRS Fuel Credits Bill]

3.27               The Government will review the assistance for heavy on-road transport businesses after one year.

CPRS fuel credits — gaseous fuel entitlements

3.28               Sections 6-25, 6-30 and 6-35 of the CPRS Fuel Credits Bill cover the CPRS fuel credit entitlements for eligible gaseous fuels marketed or intended for use in a vehicle travelling on a road.  To be eligible for a CPRS fuel credit for the supply or own use of eligible taxable gaseous fuels, an entity must be the liable entity for that fuel under Carbon Pollution Reduction Scheme Bill 2010 (CPRS Bill).  Suppliers (including self supply) will benefit from a CPRS fuel credit for differing transitional periods depending on the fuel.  [Division 6, sections 6-25, 6-30 and 6-35, CPRS Fuel Credits Bill]

3.29               The CPRS fuel credit will be provided to LPG suppliers for the period 1 July 2011 to 30 June 2014 as it is predominantly used for private motoring as an alternative to petrol.  The Government will review this measure as part of the review of the fuel tax adjustment mechanism.  [Division 6, section 6-25, CPRS Fuel Credits Bill]

3.30               The CPRS fuel credit will be provided to LNG and CNG suppliers for the period 1 July 2011 to 30 June 2012.  This treatment is the same as heavy on-road transport as LNG and CNG are predominantly used for this purpose.  The Government will review this measure after one year.  [Division 6, sections 6-30, 6-35, CPRS Fuel Credits Bill]

3.31               As the volume of emissions from these fuels is substantially lower than the volume from petrol and diesel, the Australian emissions unit auction charge impact on them will be lower.  To reflect this, these fuels will receive less than the full amount of the CPRS fuel credit.  This will maintain the relative prices of these fuels against petrol and diesel.  [Items 6 to 8, Division 7, section 7-5, CPRS Fuel Credits Bill]

3.32               From 1 July 2001, based on current taxation arrangements and the introduction of the emissions unit charge fixed at $10 per tonne, CNG will receive a CPRS fuel credit of 1.915 cents per cubic meter (78 per cent of the full credit), LNG will receive a credit of 1.228 cpl (50 per cent of the full CPRS fuel credit).  LPG, which has the three year assistance period, will receive a credit of 1.645 cpl (67 per cent on the full CPRS fuel credit) for the first year after which the credit will be adjusted in accordance with increases in the emissions unit charge.  [Items 6 and 7, Division 7, section 7-5 CPRS Fuel Credits Bill]

CPRS fuel credit entitlement disallowances

3.33               Subdivision 6-B of the CPRS Fuel Credits Bill details the situations where entities otherwise eligible for a CPRS fuel credit under sections 6-5, 6-10, 6-15, 6-20, 6-25, 6-30 and 6-35 are disallowed. 

3.34               Specifically, there is no entitlement to a CPRS fuel credit if another entity was previously entitled to the credit.  This ensures that only one entity in the supply chain for the fuel is eligible for the CPRS fuel credit.  [Division 6, section 6-40, CPRS Fuel Credits Bill]

3.35               There is also no CPRS fuel credit entitlement for fuel to be used in motor vehicles that do not meet the environmental criteria applying under the Fuel Tax Act.  This condition applies to the heavy on-road transport industry entitlements.  Motor vehicles that do not meet these criteria can not claim fuel tax credits and therefore pay fuel tax on their fuels.  As a result, these businesses will benefit from the cent-for-cent fuel tax reductions and do not need to be further compensated by the CPRS fuel credits.  [Division 6, section 6-45, CPRS Fuel Credits Bill]

3.36               There is no CPRS fuel credit for fuel that you acquire, manufacture or import for use in aircraft if the fuel was entered for home consumption for that use.  As outlined in paragraph 1.9 of Chapter 1, fuels used in aircraft do not pay fuel tax apart from a small cost recovery charge.  [Division 6, section 6-50, CPRS Fuel Credits Bill]

Administration of entitlements

3.37               Division 8 specifies that an entitlement under section 6-5, 6-10, 6-15 or 6-20 to a CPRS fuel credit for fuel is worked out on the basis of the fuel’s intended use when it is acquired, manufactured or imported.  If the fuel is used differently, or is not used at all, there will be an increasing or decreasing CPRS fuel credit adjustment for the entity that claimed the credit.  [Division 8, sections 8-5 and 8-10, CPRS Fuel Credits Bill]

3.38               CPRS fuel credit adjustments are included in working out a net fuel amount under the Fuel Tax Act.  The net fuel amount determines how much the Commissioner of Taxation is owed or owes.  A net fuel amount received by an entity that is carrying on a business will generally be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 as an ordinary incidence of an entity’s income producing activities.

3.39               Division 10 specifies that CPRS fuel credits and CPRS fuel credit adjustments are attributed to tax periods (or fuel tax return periods).  The CPRS fuel credit is attributable to the same period as the input tax credit for the fuel (to reduce compliance costs).  However, CPRS fuel credit adjustments can be made in the tax period (or fuel tax return period) in which the entity becomes aware of the adjustment.  Whichever period is used, the excise rate applicable is the relevant rate when the fuel was acquired as detailed in paragraph 3.14.  [Division 10, section 10-5, CPRS Fuel Credits Bill]

3.40               Claims for CPRS fuel credits can be made up to four years after the entitlement to the credit occurs.

3.41               Division 11 specifies that the Minister for Finance and Deregulation may give directions, as are necessary or convenient, to ensure that Commonwealth and untaxable Commonwealth entities should be notionally entitled to CPRS fuel credits and have notional CPRS fuel credit adjustments.  The Minister for Finance and Deregulation is required to publish any written directions given under subsection 11-10(2) of the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Act 2010 on the Department of Finance and Deregulation website.  [Division 11, section 10, CPRS Fuel Credits Bill]

Application and transitional provisions

3.42               The CPRS Fuel Credits Bill 2010 commences on 1 July 2011 assuming section 3 of the CPRS Bill 2010 commences on that date.



C hapter 4     

CPRS fuel credits — consequential amendments

Outline of chapter

4.1                   This chapter notes the consequential amendments in the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2010 (CPRS Fuel Credits (Consequential Amendments) Bill) that relate to the Fuel Tax Act 2006 (Fuel Tax Act), the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953).  The amendments are a consequence of the introduction of the Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2010 (CPRS Fuel Credits Bill).

Context of amendments

4.2                   As announced in the Government’s White Paper, Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future (White Paper), the Government will provide assistance to the agriculture, forestry, fishing and heavy on-road transport industries.  Businesses receive fuel tax credits to offset the fuel tax on their business inputs so they do not benefit from the ‘cent-for-cent’ reduction in fuel tax.  The Government therefore is establishing the Carbon Pollution Reduction Scheme fuel tax credit (‘CPRS fuel credit’) program to provide credits to offset the impact of the Carbon Pollution Reduction Scheme (Scheme) emissions unit charge for these industries. 

4.3                   Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed natural gas (CNG) are alternative transport fuels.  These fuels will face a Scheme emissions unit obligation, however, as LPG, LNG and CNG are currently outside of the fuel excise system they will not benefit from the fuel tax reductions applying to other fuels.  This would distort the fuel market by decreasing the price of diesel and petrol relative to these fuels.  The CPRS fuel credit program will provide credits to maintain the price relativities of gaseous fuels in respect of diesel and petrol in the fuel market.

4.4                   The Government also announced in the White Paper that CPRS fuel credits will be administered by the Australian Taxation Office and will be claimed by businesses on their business activity statements.

Summary of new law

4.5                   The measures in the CPRS Fuel Credits (Consequential Amendments) Bill are mechanical in nature, necessary to update the Fuel Tax Act, the ITAA 1997 and the TAA 1953 for the introduction of the CPRS Fuel Credits Bill and the administrative arrangements announced by the Government.

Comparison of key features of new law and current law

New law

Current law

The new formula in section 60-5 of the Fuel Tax Act for fuel tax liability includes allowances for CPRS fuel credit and increasing or decreasing adjustments for CPRS fuel credits.

The current formula in section 60-5 of the Fuel Tax Act for fuel tax liability does not include allowances for CPRS fuel credit and increasing or decreasing adjustments for CPRS fuel credits.

Detailed explanation of new law

4.6                   The existing formula in section 60-5 of the Fuel Tax Act for determining the net fuel amount is replaced.  The net fuel amount reflects the amount either owed to the Commissioner of Taxation (Commissioner) or the Commissioner owes.  The new formula includes the CPRS fuel credit and increasing or decreasing adjustments for CPRS fuel credits.

4.7                   The non-economic engagement provision in section 75-10 of the Fuel Tax Act is also extended to include the CPRS Fuel Credits Bill.

4.8                   The CPRS Fuel Credits Bill will be included in the relevant provisions considered in determining ‘purpose’ or ‘effect’ under section 75-15 of the Fuel Tax Act.

4.9                   The Fuel Tax Act 2006 is amended to require the Minister for Finance and Deregulation to publish any written directions given under subsection 95-10(2) of the Fuel Tax Act 2006 on the Department of Finance and Deregulation website.

Application and transitional provisions

4.10               The CPRS Fuel Credits (Consequential Amendments) Bill commences on 1 July 2011 assuming section 3 of the Carbon Pollution Reduction Scheme Bill 2010 commences on that date.