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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)
Table 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
Glossary
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 |
|CO2-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 |Carbon Pollution Reduction |
|Bill |Scheme (CPRS Fuel Credits) |
| |Bill 2010 |
|CPRS Fuel Credits |Carbon Pollution Reduction |
|(Consequential |Scheme (CPRS Fuel Credits) |
|Amendments) Bill |(Consequential Amendments) |
| |Bill 2010 |
|Customs Tariff Act |Customs Tariff Act 1995 |
|Customs Tariff |Customs Tariff Amendment |
|Amendment Bill |(Carbon Pollution Reduction |
| |Scheme) Bill 2010 |
|emissions factor |carbon dioxide-equivalent |
| |(CO2-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 |Excise Tariff Amendment |
|Amendment Bill |(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 |
General outline and financial impact
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) | | | | | |
|Australia|- |- |-$30m |-$60m |-$60m |
|n Customs| | | | | |
|and | | | | | |
|Border | | | | | |
|Protectio| | | | | |
|n Service| | | | | |
|ATO |- |- |-$1,150|-$3,110|-$3,500m|
| | | |m |m | |
|Total |- |- |-$1,180|-$3,170|-$3,560m|
| | | |m |m | |
|Expense | | | | | |
|($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.
Chapter 1
Adjustment of fuel tax rates - excise duty
Outline of chapter
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
2. From commencement the Carbon Pollution Reduction Scheme (Scheme)
will cover transport emissions.
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.
4. To give households and businesses time to adjust to the Scheme, the
Government outlined transitional arrangements for fuels in the
White Paper.
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.
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.
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.
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.
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.
10. Liquid petroleum gas (LPG), liquid natural gas (LNG) and compressed
natural gas (CNG) are currently not subject to fuel tax.
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
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.
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.
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 |No adjustment provisions.|
|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. | |
Detailed explanation of new law
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]
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]
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.
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]
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 CO2-e emissions in these
fuels.
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]
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]
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 (CO2-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]
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.
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)]
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.
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]
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.
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
29. The adjustment provisions commence on 1 July 2011 assuming that
section 3 of the CPRS Bill commences on the date.
Chapter 2
Adjustment of fuel tax rates - customs duty
Outline of chapter
30. 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
31. 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.
32. 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.
33. 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.
34. 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
35. 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 |No substitution |
|excise-equivalent duty |provisions if excise |
|rates on fuel subheadings|rates change. |
|when the automatic | |
|adjustments of fuel tax | |
|rates in the excise | |
|tariff are made. | |
Detailed explanation of new law
36. 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.
37. 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]
38. 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
39. 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.
Chapter 3
CPRS fuel credits
Outline of chapter
40. 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.
41. 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
42. 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.
43. 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.
44. Households will benefit directly from 'cent-for-cent' reductions to
fuel tax as outlined in Chapter 1.
45. 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.
46. 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
47. 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 |There is no CPRS fuel |
|provide a CPRS fuel |credit program. |
|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. | |
|CNG and LNG transport |There is no CPRS fuel |
|fuel will receive CPRS |credit program. |
|fuel credits for one | |
|year. Respectively, the | |
|amounts of the credits | |
|are 78 per cent and | |
|50 per cent. | |
Detailed explanation of new law
48. 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.
49. 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
50. 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]
51. 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.
52. 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.
53. 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]
54. 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
55. 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]
56. 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
57. 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]
58. 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]
59. 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]
60. 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]
61. 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]
62. 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
63. 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]
64. 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.
65. 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]
66. The Government will review the assistance for heavy on-road
transport businesses after one year.
CPRS fuel credits - gaseous fuel entitlements
67. 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]
68. 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]
69. 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]
70. 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]
71. 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
72. 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.
73. 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]
74. 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]
75. 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
76. 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]
77. 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.
78. 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]
79. Claims for CPRS fuel credits can be made up to four years after the
entitlement to the credit occurs.
80. 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
81. The CPRS Fuel Credits Bill 2010 commences on 1 July 2011 assuming
section 3 of the CPRS Bill 2010 commences on that date.
Chapter 4
CPRS fuel credits - consequential amendments
Outline of chapter
82. 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
83. 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.
84. 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.
85. 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
86. 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 |The current formula in |
|section 60-5 of the Fuel |section 60-5 of the Fuel |
|Tax Act for fuel tax |Tax Act for fuel tax |
|liability includes |liability does not |
|allowances for CPRS fuel |include allowances for |
|credit and increasing or |CPRS fuel credit and |
|decreasing adjustments |increasing or decreasing |
|for CPRS fuel credits. |adjustments for CPRS fuel|
| |credits. |
Detailed explanation of new law
87. 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.
88. The non-economic engagement provision in section 75-10 of the Fuel
Tax Act is also extended to include the CPRS Fuel Credits Bill.
89. 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.
90. 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
91. 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.