The ATO is warning people to be cautious about arrangements promoting the generation of deductions from the purchase of offshore “emission units” that do not exist at the time of the arrangement. In issuing Taxpayer Alert TA 2012/6 on Tue 25.9.2012, the ATO says it believes many of these arrangements may not be legitimate, and warns those involved may face a large tax debt, substantial penalties or even prosecution. “These arrangements, entered into with an offshore entity which may be incorporated in a tax haven, claim to allow participants to deduct the entire purchase price of the offshore ’emission units’, while making only a small initial payment,” the Tax Commissioner said.
Under these arrangements, participants who are carrying on a business, contract with an offshore entity to purportedly purchase offshore “emission units” generated through offshore carbon reduction activities. The arrangement claims to allow participants to deduct the entire purchase price of the offshore “emission units” in the income year that they enter the arrangement. The ATO says participants are not necessarily “liable entities” under the Clean Energy Act 2011, and may not have a legal obligation under that legislation in respect of their carbon emissions. The number of the offshore “emission units” contracted for under the arrangement is not necessarily related to participants’ carbon emissions.
The ATO has concerns about whether the full purchase price of the offshore “emission units” is incurred in the income year in which the arrangement is entered into and whether any expenses incurred by the participants under the arrangement are deductible. Mr D’Ascenzo said the ATO has seen examples where, for an initial payment of $21,000, taxpayers have claimed $140,000 in deductions. The terms of the arrangement indicate that the taxpayers may not be obliged to pay the full amount of the purchase price, he said.
Source: ATO media release 2012/44, 25 September 2012
[LTN 186, 25/9]