A Carbon Tax – Looming on the Horizon

The Federal Government has released details of their plan for a carbon tax to take effect from 1 July 2012 in their report ˜Securing a Clean Energy Future.  The document examines the need to reduce carbon emissions and establishes the infrastructure to manage and enforce the new carbon tax scheme.

WHEN?

The carbon tax will commence on 1 July 2012.

WHO?

The tax will target Australia’s top 500 polluters referred to as any business responsible for direct greenhouse gas emissions of 25,000 tonnes or more p.a. (excluding road transport fuels, which will be subject to separate treatment as described below). The threshold will be lower for landfill facilities.

Retailers of natural gas will be responsible for tax on carbon emissions from the use of fuels they sell. The tax will target stationary energy, waste, rail, domestic aviation and shipping, industrial processes and fugitive emissions.  The Government also intends to extend the tax from 1 July 2014 to cover heavy on-road vehicles. Tax will not be levied on fuel used by households, small business, agriculture, forestry and fishing.  Transport fuels will not be taxed, but for some users the fuel tax credits and excise schemes will be amended to give the same economic effect to these fuels as the imposition of the carbon tax.

Although end consumers will not have to pay the tax it is likely to result in higher prices for products and services that require higher amounts of carbon emitting fuels etc.

HOW?

The scheme will initially impose a fixed price on carbon pollution.  This will continue for the first three years of the scheme, being replaced from 1 July 2015 with a carbon price to be determined by the market.

Businesses impacted by the scheme will initially be required to purchase permits from the Government equivalent to the quantity of carbon pollution they release.  The initial price will be $23 per tonne increasing to $24.15 on 1 July 2013 and $25.40 on 1 July 2014.

Some trade exposed industries will be given free permits to ensure they are not adversely affected by international competition.

From 1 July 2015, the scheme will revert to a floating price set by the market.  The Government will set a cap on the number of permits it will issue each year based on the amount of acceptable carbon emissions for that year.

Some permits will continue to be provided free by the Government to trade exposed industries, and the balance will be sold at auction.  These permits will be transferable and may be bought and sold by businesses.  In addition, a price ceiling and a price floor will be incorporated into the scheme to manage price volatility.

INCOME TAX AND GST ASPECTS

A new set of provisions will be introduced to deal with the income tax aspects of the carbon tax.  However, the general outline of the scheme is:

  • Proceeds from sale of carbon permits are assessable;
  • Expenditure on the purchase of permits will be deductible, governed by a rolling balance method similar to accounting for trading stock, so that the deduction is only available once the permit is either surrendered or sold;
  • Cash grants will be assessable;
  • Permits allocated for free carbon permits are assessable on receipt and deductible when the permit is surrendered; and
  • It is intended to make permits GST free (requires the agreement of the states).

There is no indication of how the accounting rules will be amended to account for the carbon tax and permits.

THE CONCESSIONS

To give effect to the carbon tax and make it more politically palatable to the electorate the scheme contains numerous concessions to individuals, small business and industry.

Individuals – through the tax system

The Government will provide compensation to taxpayers through increases in the tax free threshold and some marginal tax rates (with compensating adjustments to the low income tax offset).

The effect of these changes is to change the effective tax free threshold (including the low income tax offset) from the current $16,000 to $20,542 in 2011-13 and $20,979 in 2015-16.

New Tax Rates

Effective 1 July 2012

Taxable income ($) Tax payable ($)
0 – 18,200 Nil
18,201 – 37,000 Nil + 19% of excess over 18,200
37,001 – 80,000 3,572 + 32.5% of excess over 37,000
80,001 – 180,000 17,547 + 37% of excess over 80,000
180,001 + 54,547 + 45% of excess over 180,000

1. Excludes the Medicare levy.
2. Low income tax offset is a maximum of $445.
3. Effective tax-free threshold is $20,542.

Effective 1 July 2015

Taxable income ($) Tax payable ($)
0 – 19,400 Nil
19,401 – 37,000 Nil + 19% of excess over 19,400
37,001 – 80,000 3,344 + 33% of excess over 37,000
80,001 – 180,000 17,534 + 37% of excess over 80,000
180,001 + 54,534 + 45% of excess over 180,000

1. Excludes the Medicare levy.
2. Low income tax offset is a maximum of $300.
3. Effective tax-free threshold is $20,979.

Pensioners and welfare recipients

Pensioners will receive an increase of 1.7% in the rate of the pension in the form of a tax exempt Clean Energy Supplement paid annually from 20 March 2013 (indexed to inflation).  In addition, a one off payment of a Clean Energy Advance will be paid in May 2012 (tax exempt).

These benefits will also be paid to recipients of Disability Support, Carer Payments, Parenting Payment, Newstart allowances, Abstudy, Austudy, and Part A and Part B family tax benefits.  Self-funded retirees who hold a Commonwealth Seniors Health Card will also be entitled to these payments.

Low income households can also apply for an additional payment of $300 payable on an annual basis.

Small business

Small business entities (with less than $2m turnover) will receive the following:

  • An increase in the small business asset write-off from 1 July 2012 to $6,500 (increase of $1,500);
  • Assistance in reducing energy costs;
  • Clean technology advice;
  • Support to assist in reducing carbon footprint and to develop new clean technologies; and
  • Are not required to report carbon emissions.

Industry assistance

There is a raft of industry assistance that will be provided:

  • Jobs and Competitiveness Program – assistance to industries exposed to international competition that are emissions intensive (no details available).
  • Clean Technology Investment Program – grants to manufacturers to support investment in energy efficient capital equipment and technology.
  • Clean Technology Food and Foundries Investment Program – grants to food processing, metal forging and foundry industries to assist investment in energy efficient capital equipment and technology.
  • Steel Industry Assistance – encourage investment and innovation in Australian steel making industry.
  • Coal Sector Jobs Package – transitional assistance to implement carbon abatement technologies for carbon intensive mines.

Agricultural assistance

There is a raft of assistance that will be provided:

  • Carbon Farming Initiative – rewards farmers and landholders who capture carbon on their land, such as planting trees, reduced methane from livestock or reduced fertiliser emissions.
  • Australia’s Farming Future – assist primary producers adapt and respond to climate change.
  • No reduction in fuel tax credits.

TRANSPORT – FUEL TAXES

There will be a carbon price added to fuels used in domestic aviation, marine and rail transport.  However, this will not be covered by the carbon pricing mechanism for coal and natural gas, instead there will be adjustments to the fuel credits or fuel excises to give a similar price increase as with the carbon pricing mechanism for coal and natural gas.

Off road uses of fuel, such as use of diesel generators on a mine site, will have a carbon price by a reduction of the diesel fuel rebate.

There will be no carbon price on private and light commercial vehicles use of fuel.  Agriculture, forestry and fishing industries will also not have any carbon price added to the cost of off road use of fuel.

There will be no carbon price on heavy on-road vehicles initially, but the Government intends to impose the tax from 1 July 2014 – this has not been agreed to by the Multi Party Committee.

Renewable fuels and non-combustible fuels used for lubrication will not bear a carbon price.

As noted, this Tax Flash prepared by PKF in July 2011, presents a summary of the main points contained in the Government’s carbon tax report.