International Tax Newsletter - Winter 2011-12 - Australia
CARBON EMISSIONS PRICING SCHEME
In response to the threat of climate change caused by human-generated greenhouse gas emissions, the Australian Government has introduced a carbon emissions pricing scheme to commence on 1 July 2012.
Firstly, a price will be set for the emissions of carbon from large emitting installations - such as electricity producers, steel makers and aluminium smelters — responsible for direct greenhouse gas emissions of more than 25,000 tonnes of carbon (or carbon equivalent) annually.
Secondly, as to fuels for heavy road transport, domestic aviation, marine and rail transport and off-road use, existing fuel tax credits and excise schemes will be amended to give the same economic effect as the imposition of the carbon tax.
- Carbon tax for large emittersFor the first two years, the scheme will operate like a tax with the Government dictating the price for greenhouse gas emission permits. From 1 July 2015, it is proposed the scheme will become a cap-and-trade emissions trading scheme with the Government setting the cap on the amount of greenhouse gas that can be emitted by Australian emitters and the price of permits being set by the market (with a price floor and ceiling set by the Government).
The initial price of permits will be $23 per tonne of carbon (or equivalent of other green house gases) increasing to $24.15 on 1 July 2013 and $25.40 on 1 July 2014.
Certain trade exposed industries will be given free permits to ensure they are not adversely affected by international competition. After 1 July 2015, permits will continue to be provided free by the Government to certain trade-exposed industries until a more extensive international emission system is introduced.
- Transport fuel taxesA broadly equivalent cost will be imposed in the form of selective reductions of fuel tax credits and excise changes to fuels as listed further above.
- ConcessionsAlthough end consumers will not be directly affected by this scheme, it is likely to result in higher prices for certain products and services. To offset these higher prices, the scheme also contains tax reductions for individuals and various grants and assistance packages for manufacturers, coal and steel producers and the agricultural industry.
NEW MINING AND PETROLEUM TAXES
The Australian Government proposes to introduce a Mineral Resource Rent Tax (MRRT) on profits made on mining of coal and iron ore in Australia. It will also extend the operation of the existing Petroleum Resource Rent Tax (PRRT) to include all petroleum projects on Australian territory, either at sea or on land. This will be associated with a general reduction in the income tax rate for companies. These changes are proposed to start from 1 July 2012.
TAX EXEMPTION FOR NON-RESIDENT MANAGED FUNDS
The Australian Government has announced concessions that will, inter alia, exempt foreign investment funds that fit the definition of an Investment Manager Regime (IMR) foreign fund, which generally requires the fund to:
- not be an Australian resident for income tax purposes
- be recognised under a foreign law as a collective investment vehicle
- not have its day-to-day control reside in the members of the fund
- not carry on a trading business in Australia, i.e., all of its Australian-sourced income is passive investment income
be widely held and not closely held.
These provisions apply where the IMR foreign fund has IMR income or losses as defined under specific tests.
- Fin 48 Amendments
There are two related sets of concessions in these proposed amendments. The first set of rules are designed to alleviate problems that some IMR foreign funds had in complying with the U.S. Fin 48 rules over the last few years because of uncertainties in applying Australian tax laws to their investments. These amendments will apply to 2010/2011 and previous taxable years and will provide that the IMR fund income and gains made by the IMR foreign funds will not be assessable income of the fund under specified tests.
- Investment Manager Regime - Conduit Income
The second set of concessions applies to 2010/2011 and subsequent tax years, to exclude from Australian income tax all IMR income and losses, as well as IMR capital gains and losses, where the IMR fund does not have a place of business in Australia but is treated as having a permanent establishment in Australia solely as a result of engaging an Australia-based investment manager who habitually exercises a general authority to negotiate and conclude contracts on behalf of the fund.
NEW TAX INCENTIVES FOR RESEARCH AND DEVELOPMENT
The Australian Government has changed the taxation incentive regime for companies conducting research and development (R&D) activities in Australia, effective for income years commencing from 1 July 2011.
- Access for foreign companies
The concession will be expanded to encompass foreign companies operating in Australia through a permanent establishment. This will bring in foreign companies carrying on R&D through a branch in Australia. Foreign ownership of the results of the R&D activity is specifically accommodated under the new regime.
- From tax deductions to tax creditsUnder the new credit regime R&D expenditure will become non-tax deductible, although subject to a tax credit at either the 45% or 40% rate (against the current 30% tax rate).
- Changes to R&D activities' eligibility criteriaThe previous focus for “core R&D” on “systematic, investigative and experimental activities involving innovation or high levels of technical risk” has been replaced with “experimental activities for the purpose of creating new knowledge.”
More information on these developments can be provided by Lance Cunningham, Director of Taxation, PKF Australia Limited, through the EisnerAmper contacts listed on the homepage.
International Tax Newsletter - Winter 2011-12 Issue