Proposed changes to the Fuel Tax Credit regime:  The Clean Energy Legislation

Under the Government’s Clean Energy legislation it is being proposed that the fuel tax credit regime will be overhauled to impose an “effective carbon price” on the use of fuel by certain businesses.

Businesses that currently pay little or no excise on fuel due to Fuel Tax Credits under the existing rules, will now pay an effective carbon price through the fuel tax regime. It should be noted that these businesses will be in addition to the proposed “top 500 polluters’ who will be directly liable for the CPM.

Should the bill be passed in its current form, a reduction in Fuel Tax Credits will occur for fuels acquired or consumed after 1 July 2012. This reduction in credits will progressively rise over the initial three year transitional period in proportion with the fixed carbon price rates per above. When Australia moves to an emissions trading scheme from 1 July 2015, it is expected that the reduction to the Fuel Tax Credit will be determined on a six-monthly floating basis, based on a weighted average carbon price.

The reduction in credits will depend on the specific level of emissions for fuels. However to reduce the compliance burden, the charge on liquid fossil fuels other than petrol will be based on the diesel emission rate. The impact to business is intended to be equivalent to the carbon price that would have been imposed had transport fuels been subject to carbon pricing.

An effective carbon price will also be imposed on the emissions from the use of other fuels such as aviation fuel and non-transport gaseous fuels, which are outside the scope of the current fuel tax credit regime. This will be achieved by an increase in the excise on aviation fuel whereas non-transport uses of gaseous fuels will receive a reduction on the current exemption.

There are a few important exceptions to the proposed “effective carbon price” for fuels. The change in Fuel Tax Credits will not apply to the agriculture, forestry and fishery industries and as a result, they will not be paying an effective carbon price.

An effective carbon price will also not be imposed on heavy on-road vehicles, being those vehicles with a gross vehicle mass over 4.5 tonnes, from the commencement of the proposed scheme. It is the current Government’s intention to apply an effective carbon price of such vehicles from 1 July 2014; however this is contingent on the introduction of further legislation.

As such, the industry likely to bear the biggest impact from these changes is expected to be the mining industry which currently receives Fuel Tax Credits in relation to their use of diesel in off-road vehicles. Going forward, the Fuel Tax Credit will be reduced such that these businesses pay an effective carbon tax.

Please feel free to contact Grant Thornton’s climate change team or your usual Grant Thornton advisor if you require further details or have any questions.

Mark Azzopardi (Tax enquiries)
National Head of Tax
T  +61 3 8663 6200
E  mark.azzopardi@au.gt.com

Tony Markwell (Business advisory enquiries)
National Head of Privately Held Business
T  +61 7 3222 0291
E  tony.markwell@au.gt.com

Andrew Archer (Audit and financial reporting enquiries)
National Head of Audit & Assurance
T  +61 2 8297 2528
E  andrew.archer@au.gt.com

Brian O'Meara (Enviornment and industry assistance enquiries)
Associate Director - Privately Held Business
T  +61 3 8663 6257
E  brian.omeara@au.gt.com