The Institute’s submission on the Carbon Pollution Reduction Scheme (CPRS) is a response to the government’s Green Paper, issued by the Department of Climate Change in July. Comments were made in the key areas of taxation, accounting and reporting and assurance.  
 
Following consideration of submissions and further consultation, the government intends to issue a White Paper and Exposure Draft by December 2008.  
 
From an accounting and reporting perspective, the Institute agrees with the government’s preference for the development of an international accounting standard rather than an Australian specific approach. This would ensure continued compliance of Australian companies with International Financial Reporting Standards (IFRS).  
 
From an assurance perspective, the Institute’s position is that the current proposal for assurance on data lodged at a threshold that is substantially higher than the proposed reporting threshold has potential to lead to confusion and misunderstanding. The Institute recommends that the reporting and assurance thresholds be aligned.  
 
On the tax side, the key submission points, which were prepared with the help of the Taxation Treatment of Emissions Trading Committee, include the following:

• The Institute supports the government’s proposal to develop discrete provisions of the income tax law to govern the tax treatment of permits which should provide increased certainty, reduced complexity and equitable outcomes
• The Institute does not agree with the proposition that free permits and cash grants be assessable up front on receipt, as this would create timing and/or permanent disadvantages. The simplest mechanism, in relation to free permits and cash grants, is for these to be expressly exempted from taxation
• The Institute considers that it is imperative that the tax policy in relation to CPRS should include a tax loss carry-back mechanism. This will be applicable to the parties which are affected by the constraints on free permits and thus have an adverse impact on their business values arising from this policy
• The rolling balance method as currently proposed does not achieve a matching of revenue and expenditure. If it is to be used as the underlying calculation mechanism, it needs to be augmented by an express rule that the permits on hand at the end of the taxpayer’s balance date should be reduced by the permits which will be acquitted after year end in relation to emissions identified as occurring before the taxpayer’s year end and a nil value should be given to free permits
• The tax implications under proposed stages three and four of the Taxation of Financial Arrangements should be considered
• In regard to the GST, the Institute’s recommendations include the adoption of a stand-alone GST-free (or non-supply) model for core trades and dealings in permits and similar emissions rights. In particular, a specific provision should be inserted into the GST Act to achieve this
• Consideration should be given to appropriate climate change tax incentives as part of the design and implementation of the CPRS.

• The Institute: Carbon Pollution Reduction Scheme submission
• The Institute: The Benefits of Assuring Carbon Emission Disclosures
• The Institute: Australia’s Proposed Emissions Trading Scheme – The Tax Policy Dimension
• Federal government: Green Paper