Australia: Energy Tax Reform Packages

Tax Brief
Last Updated: 13 April 2012
Article by Ken Spence, Nick Heggart and Paul King

Despite the precarious state of the Parliament, the Government has managed to enact both its carbon tax package and the minerals resource rent tax Bills. This Tax Brief is a snapshot of what has happened and what happens next.

The 'Carbon Tax' package

The enactment of a carbon tax has been a long and difficult process for the Government. In September 2010, the Prime Minister announced a 'Multi-Party Climate Change Committee' to examine a carbon pricing mechanism. On 24 February 2011, the Government announced the broad design features of a carbon price mechanism and further detail was provided with the release of the 'Clean Energy Future' package on 10 July 2011. A package of 21 Bills to give effect to the carbon pricing mechanism was introduced into Parliament and passed in November 2011. They became law in December 2011 and will commence on 1 July 2012.

Companies which are directly subject to the pricing mechanism are no doubt still in the throes of gearing up for the commencement of the tax. (Details of the operation of the carbon tax are in our Tax Brief available at http://www.gf.com.au/829_1011.htm). Other sectors of the economy will see the indirect impact of the tax in higher costs for goods and services.

The money raised by the carbon tax has been earmarked by the Government for a variety of uses: providing subsidies to trade exposed industries, funding research and development in cleaner energy alternatives and a variety of measures to compensate households: increases to pensions, family tax benefit and other government payments, and some cuts to the income tax, directed mostly to low income individuals.

Income tax changes that will come into effect from 1 July 2012 are:

  • the tax free threshold for individuals will be increased from $6,000 to $18,200;
  • the low income tax offset will be reduced;
  • the thresholds for the Medicare levy will be increased; and
  • the two bottom tax brackets [currently 15% and 30%] will be increased to 19% and 32.5%. The thresholds for these rates and the remaining rates are unaffected.

Further increases to the tax-free threshold, reductions to the low income tax offset and increases to the tax rates have been enacted and will operate for succeeding years.

For business, money from the carbon tax is to be used to fund an immediate deduction for assets costing $6,500 acquired by small business entities. The Government had announced, in its 2010 response to the Henry Review that the threshold for deducting the price of low cost assets would be increased to $5,000. The increase in threshold to $6,500 was announced as part of the carbon tax package. Legislation to give effect to this measure was introduced into Parliament in November 2011 and passed by the Senate in March 2012. The measures apply from the 2012-13 income year but will only be available to small business entities.

The MRRT measures

The passage of the Minerals Resource Rent Tax was also long and difficult. (Details of the operation of the MRRT are in our Tax Brief available http://www.gf.com.au/829_1016.htm).

In May 2010, the Government announced a Resources Super Profits Tax along the lines recommended by the Henry review. By July 2010, Julia Gillard had replaced Kevin Rudd as Prime Minister, and the tax was reconceived as the MRRT. The new tax was limited just to iron ore and coal projects. A second part of the package of reforms extended the existing petroleum resources rent tax to onshore oil fields and to gas projects. A Policy Transition Group was formed to refine the design features of these measures through industry consultation. After a long process, legislation was introduced into the Parliament in November 2011 and was passed by the Senate on 19 March 2012.

When the RSPT was announced by Kevin Rudd, the government also indicated that money from the MRRT would be earmarked for a variety of purposes: increasing the level of superannuation from 9% to 12%, funding a reduction in the corporate tax rate (promised to be to 28% starting in 2012 for small businesses), an immediate deduction for assets costing up to $5,000 and simplifying the depreciation rules for pooled assets.

Those target areas did not change in the transition from the RSPT to the less ambitious MRRT, although the government varied the size of the corporate tax commitment: the promised reduction in the corporate tax rate was amended to be a reduction to 29%, with small companies eligible for the 29% rate from 1 July 2012 and other companies from 1 July 2013.

As a result of the passing of the MRRT measures,

  • an immediate deduction for low cost assets (available for assets costing up to $6,500) acquired by small businesses will commence from 1 July 2012;
  • changes to the pooling rules for the depreciating assets of small businesses will commence from 1 July 2012; and
  • the rate of superannuation guarantee will increase from 9% to 12% at the rate of 0.5% pa over 7 years, starting from 1 July 2013.

However, the reduction in the corporate tax rate has not yet been legislated. Indeed, no formal Bill to enact the reductions to the corporate tax rate has been introduced into the Parliament, although the Treasurer released an Exposure Draft of the necessary amendments in March 2012. The reduction to the corporate rate is currently being opposed by the Opposition parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Greenwoods & Freehills are the winners of the 2011 BRW Client Choice Awards.

articles to be approved by Kris Fields

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