Transcript: IndirecTV™ video update – August 2011
Changes to fuel taxation and impact of carbon pricing
Welcome back to Deloitte IndirecTV™. I’m Andy Russell.
And I’m Ajit Hall. In this episode, we look at the upcoming changes to the fuel tax regime and the impact of the proposed carbon pricing mechanism on fuel tax credit entitlements.
Taxation of Alternative Fuels from 1 December 2011
From 1 December 2011 LPG, and both liquefied and compressed natural gas, will be brought into the fuel tax system.
The initial rates applied will be 2.5 cents per litre for LPG and 5.22 cents per kilogram for LNG and CNG.
The rates are being phased in over four years, with the final rates applying from 1 July 2015, being 12.5 cents per litre for LPG and 26.13 cents per kilogram for LNG and CNG.
Automatic remissions and exemptions from fuel tax will apply in certain circumstances, primarily for non-transport use. Where fuel tax is incurred in relation to non-transport use of gaseous fuels, generally a fuel tax credit should be available.
Although gaseous fuels used in heavy vehicles travelling on public roads will be eligible for fuel tax credits, as the current road user charge is greater than the fuel tax amount, there will effectively be no credit entitlement.
In general terms then, the fuel tax on LPG, LNG and CNG will be a cost where the fuel is used for on-road transport purposes.
Increase in existing FTC entitlements
Currently, businesses using fuel in machinery and equipment in activities such as construction, manufacturing, wholesaling or retailing can claim fuel tax credits at the half rate of 19.072 cents per litre.
From 1 July 2012, credits at the full rate of 38.143 cents per litre will be available for fuel used in these activities. This change presents a significant opportunity for existing fuel tax credit claimants to increase their overall claim.
Impact of carbon pricing on FTC entitlements
Subject to parliamentary approval, the Government plans to impose an effective carbon price on businesses’ liquid and gaseous fuel emissions.
At this stage, the changes won’t apply to the agriculture, forestry and fishery industries. The Government has also indicated that it intends to apply a carbon price on heavy on-road vehicles from 1 July 2014, however this measure was not agreed to by all members of the Multi-Party Climate Change Committee.
Otherwise, businesses eligible for fuel tax credits face an effective carbon price through reduced fuel tax entitlements. Under the proposal the level of reduction would be based on the emission rate of the fuel used and the reductions would take place from 1 July 2012, with periodic adjustments occurring thereafter.
In relation to non-transport use of LPG, LNG and CNG the Government plans to impose a carbon price on their emissions from 1 July 2012, by reducing the level of automatic remission or exemption from fuel tax that we’ve already mentioned.
Opportunities and risks
If enacted, these changes will potentially affect all current fuel tax credit claimants.
The changes may provide an opportunity to increase overall claims given the changes from half rate to full rate. However, certain taxpayers may see a reduction in overall fuel tax credit entitlements due to the introduction of the carbon pricing mechanism. There are also opportunities to minimise risk and maximise entitlements through the effective management of fuel reserves and purchases and reviewing contractual arrangements and pricing structures.
It should also be noted that the ATO is taking a more active role in fuel tax credit entitlement verification, so now is the ideal time to review fuel usage, systems and existing claims, before the changes commence.
For more information about these changes and how best to manage the associated risks and opportunities, speak to your usual Deloitte Indirect Tax contact.
Thanks for watching.