Hon Peter Dunne
Minister of Revenue
Tax side of emissions trading scheme under consideration
The tax consequences of the government's proposed emissions trading scheme are the subject of an officials' issues paper released today for public consultation.
"Introduction of the proposed emissions trading scheme will have income tax and GST implications for participants," Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.
"Core tax issues that will have to be dealt with include the general tax treatment of emissions obligations, the consequences of free allocation of emissions units, and the timing of recognition of income and expenditure.
"There are also tax issues relating specifically to the forestry sector, which is expected to be the first to enter the proposed scheme.
"The issues paper is the first step towards the progressive development of an approach to the taxation of income and expenditure arising from the emissions trading scheme.
"As part of the government's tax policy consultative process, officials are seeking feedback on suggestions for dealing with the emerging tax issues, inviting the views of interested parties. That feedback will be taken into account in determining the degree of tax legislative change that will be necessary.
"The preliminary stance taken by the issues paper is that for sectors other than forestry, expenditure associated with meeting emissions trading scheme obligations should be a tax-deductible expense and recognised on an accruals or emerging basis over time.
"In a similar vein, income from the allocation of free emissions trading units should be recognised as taxable income on an emerging basis over time.
"In relation to forests planted before 1990, the paper suggests that the receipt of free emissions trading units should be non-taxable, and expenditure associated with a change in land use should be non-deductible.
"In relation to forests planted after 1989, the paper suggests that income derived from the receipt of emissions trading units should be taxable, although there will be problems associated with the recognition and timing of income and expenditure.
"The paper suggests that emissions trading units should attract GST in the same way that any other good or service supplied by a register person is subject to the tax.
"These are all important tax questions for participants in the scheme and their tax and financial advisers. We therefore urge all interested parties to take the opportunity to express their views on the ideas set out in the paper.
"The closing date for submissions on tax matters relating to the forestry industry is 28 October, and for submissions on general tax issues it is 30 November," they said.
The issues paper, "Emissions trading tax issues", is published at www.taxpolicy.ird.govt.nz.
Bryan McDaniel, press secretary to Dr Cullen, 04 471 9412 or 021 270 9013
Ted Sheehan, press secretary to Peter Dunne, 04 470 6985, 021 638 920