The Carbon Tax is Coming!

The introduction of the carbon tax on 1 July represents the biggest tax shake-up since the GST commenced in 2000. Find out how it will affect your business.


Who Pays the Tax?

Big Business.

The carbon tax will only be paid by Australia’s biggest 500 polluting companies who will pay $23 for each tonne of carbon pollution they emit into the atmosphere each year. Most of the 500 companies are involved in the electricity generation, mining, natural gas retailing, industrial processes (cement, chemicals and metal processing), and waste disposal industries. The $23 price per tonne will rise 2.5% each year up to $25.40, before an emissions trading scheme commences in July 2015. Under that scheme, the big 500 polluters will trade permits to pollute; with the carbon price being set by the market.

Will My Business Costs Rise?

Most likely.

Although individuals and the vast majority of businesses will not pay the carbon tax directly, big business is expected to pass on the cost of the carbon tax with significant price rises expected in electricity, water as well as fuel-related transportation. Price rises are also expected to be larger within the earlier-mentioned industries which are paying the tax. All told, the carbon tax is expected to contribute 0.7% to the Consumer Price Index (CPI) in its first year. For the sake of comparison, the GST in its first year contributed 2.5% to the CPI.

Is there compensation?

Most of the business-related compensation is reserved for directly affected industries. However, there are some additional grant and incentive programs for all businesses, including programs targeted at efforts towards introducing more environmentally friendly business practices and Processess. For small businesses, from 1 July 2012 there is also:

Small Business Instant Asset Write-Off - small businesses will be able to write-off depreciating assets costing less than $6 500 (up from $1 000) in the income year in which they start to use the asset or have it installed ready for use.

Streamlined Pooling Provisions - the small business long life pool will cease to exist. Instead, all assets other than buildings will be depreciated in a general small business pool at 30% (with the rate of 15% applying in the first year).

Special Rules for Cars – small businesses can write-off $5 000 of a car in the income year in which they start to use the car (new or second-hand). The remaining value is then depreciated through the general pool at a rate of 15% in the first year and 30% in later years.

While such programs may be of assistance to some businesses, there are many who will not qualify. For instance the small business measures are only available for businesses with an annual turnover of less than $2 million (including the turnover of connected/associated entities). Likewise, many of the grant and incentive programs are only available for businesses undertaking significant environmental investments and initiatives; something which may prove unviable for many businesses.

At a household level, most individuals will be compensated via tax cuts as well as a range of increased Government payments. Higher income earners though may be worse off.

How Can My Business Prepare?

As stated, although only the 500 biggest polluters will be subject to the carbon tax, most businesses will experience increased costs. Given that you are entitled to pass these costs onto your customers/clients, it’s essential to identify which of your business inputs rise in price, and by how much. This will vary from industry to industry, although it is anticipated that utilities such as electricity and water will see across the board price rises, with transport costs also expected to rise. Additionally, if your business is part of or reliant on one of the industries listed earlier, there may be
greater flow-on cost increases.

To identify these costs, you should undertake a comparative analysis of your business inputs both pre and post carbon tax. You will then be well placed to identify which inputs have increased in cost, and in turn pass any increases onto your customers. Some businesses may however opt to absorb these costs and gain a price advantage on competitors.

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Article provided courtesy of Australian Bookkeepers Network.