CGT changes to dampen Australia’s renewable energy development

As the dust continues to settle on the government’s decision to scrap the retrospective element in its foreign investor CGT legislation on 2 July, Institute of Public Accountants senior tax adviser Tony Greco told Accounting Times that the changes will worsen foreign investor confidence in Australia for renewable energy investment.

With the Australian government looking to increase renewable energy investment to advance its sustainability goals, some say these changes will have the opposite effect.

Previously, Holding Redlich partner Dhanushka Jayawardena told Accounting Times that the retrospective element of the legislation will decrease investor attractiveness.

“The problem with this retrospectivity is that it does increase Australia's sovereign risk … [as it] was seen as one of those favourable destinations because of its historically stable and policy-aligned markets,” Jayawardena said.

Greco echoed Jayawardena, noting that it will reduce the nation's attractiveness to foreign investors, particularly for renewable energy projects.

“That's going to be a negative going forward … It just means an additional impost, and that generally can have a negative implication for whether [foreign investors] do or don't invest in Australia,” Greco said.

“[Renewable energy projects] are [large and] require investor injection from overseas … It just puts another dampener on the attractiveness of participating in these types of projects in Australia,” he added.

In a statement, Tax Institute head of tax and legal, Julie Abdalla, welcomed the removal of retrospectivity.

The institute welcomed the inclusion of energy storage assets within the renewable energy concession and the reduction of the renewable energy asset threshold from 9:1 to 3:1, broadening access to the concession and providing a more practical test for eligible projects.

"Given the breadth and complexity of these reforms, we encourage the government to undertake a post-implementation review to assess whether the measures are operating as intended and whether they are having any unintended impacts on foreign investment into Australia," Abdalla said.

Greco added: “Retrospectivity is something that should only be done in limited situations, particularly if there's fraud. But when there's no fraud, it shouldn't be done lightly. There should be a strong business case for why the government is changing the rules.”