What does an early ETS mean for businesses? An early transition to an emissions trading scheme from 1 July 2014 will benefit businesses through a reduction in electricity and gas bills. Small businesses Only around 370 of Australia s largest emitters are directly liable under the carbon pricing mechanism. Small businesses are not directly liable and as a result they have no reporting or compliance obligations. Small businesses face modest indirect impacts from carbon pricing, such as through their electricity and gas bills. The carbon price cost is a small component of most small business electricity bills and the main cause of recent electricity price rises has been the increasing network costs of transporting electricity. For the majority of small businesses the current indirect carbon costs on electricity and gas bills are 0.2 per cent or less of sales revenue which is around 2 cents for every 10 dollars of revenue under a $24.15 carbon price in 2013-14. Small businesses are likely to benefit indirectly from an early transition to emissions trading through lower input costs (for example lower electricity and gas prices) as lower carbon prices are passed through the supply chain. For example, a small retail business in NSW using around 20 megawatt-hours (MWh) of electricity per year could see its annual electricity bills reduced by around $400 in 2014-15 as a result of bringing forward an emission trading scheme, based on current estimates of a carbon price of around $6. Small businesses will continue to benefit from other components of the Clean Energy Future package including: the increase to the small business instant asset write-off threshold from to $6,500 for depreciable assets; Government initiatives to help small businesses save energy and get advice to help to grow their business sustainably; and the Government s household assistance package, which ensures millions of households are better off compared to their average carbon price impact, so customers are still be able to support small businesses. Emissions-intensive trade-exposed (EITE) industries In the trade-exposed part of the economy, jobs and competitiveness have been protected such that in the first year of the carbon price highly EITE companies pay an effective carbon price of just $1.30 a tonne, rather than the headline $23 a tonne. Commencement of emissions trading in 2014-15 and a drop in the carbon price from $25.40 to an estimate of around $6 in that year will enhance the support already in place for EITE industries. The average effective carbon price for highly EITE activities receiving assistance at a rate of 92.1 per cent in 2014-15 reduces from around $2 to around $0.50; and
The average effective carbon price for moderately EITE activities receiving assistance at a rate of 64.3 per cent in 2014-15 reduces from around $9 to around $2. Manufacturing businesses Based on current estimates, manufacturing businesses that use a considerable amount of energy but are not emissions-intensive are likely to see a 75 per cent reduction in the carbon cost component of their electricity and gas bills. For instance, a large manufacturer using 500 MWh of electricity a year could see their carbon price impact reduced from around $12,000 a year to around $3,000. Synthetic greenhouse gases (SGGs) Starting emissions trading on 1 July 2014 will reduce the equivalent carbon price on refrigerants. Based on current estimates of a carbon price of around $6 in 2014-15, the levy component of the cost to completely re-gas refrigerant systems would reduce by around 75 per cent, including: From around $4.80 to around $1.10 for a domestic refrigerator; From around $19.80 to around $4.60 for a passenger vehicle; and From around $264 to $61 for a takeaway store refrigerator. Effective carbon price on fuels An early move to an emissions trading scheme with an estimated carbon price of around $6.00 in 2014-15 will result in the effective carbon price on certain uses of petrol and diesel reducing from around 7 cents per litre to around 1.5 cents. This modest price impact is no more significant than weekly fluctuations in the fuel price. Households and light commercial vehicles along with fuel used in agriculture, fisheries and forestry activities remain excluded from the carbon pricing arrangements.
Households cost of living under an early emissions trading scheme (ETS) Moving to an early ETS from 1 July 2014 is projected to help lower the costs of living for households. Lower costs of living Under current estimates, the carbon price in 2014-15 is projected to fall from $25.40 to around $6 as a result bringing forward the introduction of an ETS. This is estimated to reduce the growth in overall consumer prices by around 0.5 per cent in 2014-15. Moving to an early ETS means that on average, household costs are estimated to be around $7.30 per week lower (or $380 over the year) in 2014-15. The impact of moving to a floating carbon price will be greatest on electricity and gas bills. Bringing forward emissions trading means average household expenditure on electricity bills in 2014-15 is estimated to be around $3.00 a week lower (or over $150 in the year) and around $1.10 per week lower (or $57 over the year) on gas bills. Lower costs for households Moving to an early ETS would mean that in 2014-15, the average cost of living would be reduced by: around $210 for a non-working single parent with two children aged 3 and 8 receiving Parenting Payment Single; around $380 for a single income couple with two children aged 3 and 8 where the bread-winner earns around $75,000; around $420 for a dual income couple with two children aged 3 and 8, on a family income of around $100,000 a year (split 75:25 between the parents); $140 for a maximum rate single Age Pensioner with no other income; and $180 for a maximum rate Age Pensioner couple with no other income. There will be no change to the Household Assistance Package Households will continue to receive assistance to meet the costs of living resulting from a carbon price. Under the package, pension and allowance recipients, and other low income households, receive assistance that at least offsets their average price impact. Middle income households receive assistance that helps them meet their price impact. The Household Assistance Package began in May 2012 with initial payments to pensioners, allowees and family payments recipients, followed by tax cuts from 1 July 2012. Recipients of government payments will continue to receive ongoing assistance through payments of the Clean Energy Supplement, which is indexed to growth in the Consumer Price Index. Further information on the package can be found at: http://www.fahcsia.gov.au/household-assistance-package.
Moving to emissions trading The Government is bringing forward the start of the flexible-price emissions trading scheme under the carbon pricing mechanism from 1 July 2015 to 1 July 2014. Moving earlier to an emissions trading scheme Carbon pricing started on 1 July 2012. For the first two years the carbon price has been fixed. This fixed price period is designed to help businesses and households adjust to carbon pricing and kick-start the transition to a clean energy future. In this period, the Government has set the price, and the market will determine the level of carbon pollution. From 1 July 2014, Australia will move to a cap and trade emissions trading scheme (ETS) where the carbon price will be set by the market. Under emissions trading, the Government will put a cap on the amount of carbon pollution that can be emitted each year. This cap is how Australia can guarantee that it will meet its emission reduction targets for 2020 and beyond and it will drive investment in clean technologies. The market will determine the carbon price in the context of this cap. Around 370 large businesses are liable to pay the carbon price. At the end of each financial year, they either surrender carbon permits equal to their total emissions or pay a charge. Businesses which generate significant pollution and face international competition, such as aluminium and steel, are being assisted with free permits under the ongoing Jobs and Competitiveness Program. As a result, the carbon price impact on their businesses is significantly reduced while still retaining an incentive to reduce emissions. For example, highly emissions-intensive, trade exposed activities received free permits for 94.5 per cent of their emissions in 2012-13 which reduced their effective carbon price to around $1.30 per tonne of emissions. Bringing forward the ETS to 1 July 2014 will allow the market to find the cheapest way of reducing Australia s emissions. Australian businesses will incur lower carbon costs and have earlier access to international permits from the European Union Emissions Trading System (EU ETS) and credible Kyoto units from international markets. Linking to global carbon markets means the Australian price will move in line with the international carbon price prevailing under the EU ETS from 2014. This is currently expected to be around $6 per tonne of emissions in 2014-15. Businesses will also provide Australian businesses with maximum scope to use Australian carbon permits and credits generated under the Carbon Farming Initiative to meet their liabilities. Australia s emissions will fall over time and the incentives for businesses to curb their own emissions and invest in clean energy will be reinforced.
FACT SHEET A fairer treatment for FBT on cars A fairer treatment of car fringe benefits The Government will make the tax system fairer by ensuring the fringe benefits tax exemption for cars is targeted to actual business use rather than including personal use This reform will remove the statutory formula method for both salary-sacrificed and employer-provided cars. This ensures a more level playing field for all workers by removing a tax concession for the personal use of a salary-sacrificed or employer-provided car. People who use their vehicle for work-related travel will still be able to use a log book to ensure their car fringe benefit excludes any business use. Recent advances in technology, such as cheap and easy-to-use car log book apps, make this much easier today than when these rules were originally introduced in 1986. Many of these apps will let the GPS on a smart phone do most of the work for you and let you send the results directly to your employer or tax agent no calculations required. The current system Under the current car fringe benefits rules, a fringe benefit will arise where an employee is provided with a car for private use. A car fringe benefit is valued using either the operating cost ( log book ) method or the statutory formula method. Under the operating cost method, the car fringe benefit is the cost of running the car multiplied by the proportion of personal use of the car worked out by a log book. Under the statutory formula method, a person s car fringe benefit is the cost of the car multiplied by 20 per cent, regardless of actual personal use of the car. The statutory formula method provides a significant tax concession for taxpayers using their car fringe benefit mainly for private travel, because it assumes a significant proportion of the use will be for business purposes. Making the tax system fairer This reform will remove the statutory formula method for both salary-sacrificed and employer-provided car fringe benefits for new contracts entered into after announcement, with effect from 1 April 2014. Existing contracts materially varied after 16 July 2013 will also fall under the new arrangements. Existing contracts that are not varied will continue to have access to the existing statutory rate throughout the contract. All car fringe benefits for new leases will be calculated using the operating cost method from 1 April 2014. The operating cost method is based on the actual business use of the car. Tax is only payable on the portion of operating costs attributable to private use. Where there is significant private use, the operating cost method ensures an appropriate amount of tax is paid on the private benefit. A tax subsidy for the private use of a car is no longer justified or appropriate. Recent technological advances, such as car log book apps, make keeping a log book easier than ever, and have assisted employers to comply with their record-keeping obligations, making compliance much easier today.
Most people claiming car expenses will be unaffected This reform will not affect the more than 3.6 million workers including employees, the self-employed and sole traders claiming deductions for work-related travel expenses when they use their own car for work reasons. The changes do not affect the existing exempt car benefit concessions that apply to certain uses of taxis, panel vans, utes and other non-car road vehicles. Around two-thirds of employees that salary sacrifice a car earn over $100,000. Less than one in 50 employees earning less than $100,000 are affected. If an individual uses their vehicle for a significant amount of work-related travel, they will still be able to use the operating cost method to ensure their car fringe benefit excludes any business use of the vehicle. Fringe benefits tax will still only apply to the private portion of any benefit provided to an employee. Employers who provide a work car to employees for occasional private use (for example, weekend travel) will continue to be able to use the operating cost method.