The compensation package: The Clean Energy Legislation
The compensation package that has been proposed under the Clean Energy provisions can be broken down into two impacted groups; individuals and industries. Each of these is addressed further below.
Carbon compensation to individuals
The compensation package which is offered to individuals has been structured as an increase to the tax-free threshold, an increase to the Family Tax Benefit and an increase to pensions. The government has announced that more than half of the money raised through the introduction of a price on carbon will be returned to individuals through this compensation package.
The expected impact of the increase to the tax-free threshold is that more than 1 million Australians will no longer be required to lodge an income tax return.
The current and future marginal income tax rates are set-out below:
| Statutory rates and thresholds |
Current |
2012-13 |
2015-16 | |||
| Threshold ($) | Marginal rate | Threshold ($) | Marginal rate | Threshold ($) | Marginal rate | |
| 1st rate | 6,001 | 15% | 18,201 | 19% | 19,401 | 19% |
| 2nd rate | 37,001 | 30% | 37,001 | 32.5% | 37,001 | 33% |
| 3rd rate | 80,001 | 37% | 80,001 | 37% | 80,001 | 37% |
| 4th rate | 180,001 | 45% | 180,001 | 45% | 180,001 | 45% |
| Effective tax-free threshold with Low Income Tax Offset |
16,000 |
20,542 |
20,979 | |||
| Medicare rates of 1.5% will remain unchanged. | ||||||
For privately held businesses, the above proposed changes to the marginal tax rates and upcoming changes to the corporate income tax rate to 29% from 1 July 2012 for small companies and 1 July 2013 for others, means that there may be incentive to bring forward the payment of fully franked dividends to before the above changes are implemented.
Under the current marginal tax rates (excluding the one-off flood levy), the maximum dividend payable so that franking credits cover the income tax and Medicare levy is $141,764 (being a cash dividend of $99,235 and franking credit of $42,529). This of course assumes no other income is received.
From 1 July 2012, the maximum dividend payable so that franking credits covers the income tax and Medicare levy will increase to $126,874 (being a cash dividend of $90,081 and franking credits of $36,793 franked to 29%). This of course assumes no other income is received. From 1 July 2015, the maximum franked dividend payable is equal to $127,011 (being cash of $90,178 and franking credits of $36,833).
Business and industry incentives
Incentives that are being offered to businesses and industry fall within two broad categories: those which apply generally to business and those which apply to specific industries that will suffer a greater impact than others as a result of the proposed Clean Energy legislation.
Business incentives
Business related incentives are primarily geared towards small businesses. The incentives being offered include:
- An increase to the immediate deduction thresholds for small business entities from $5,000 to $6,500. Broadly speaking an entity needs to have turnover of less than $2m to qualify as a small business entity.
- Competitive grants will be offered to industry groups to develop and deliver tailored information about the impacts of carbon pricing on small businesses.
Industry incentives
As noted above, some industries will be impacted more than others as a result of the introduction of the CPM. These industries have been granted a compensation package from the government to mitigate the cost and impact of the CPM.
The industries which have received the greatest compensation package include:
| Industry | Compensation |
|
$9.2bn Jobs and Competitiveness Program
|
There will be two levels of assistance available to EITE industries: For the most emission intensive trade exposed sectors, such as steel manufacturing, a free carbon unit allocation will be granted to qualifying businesses , starting at 94.5% of their carbon emissions. This leaves businesses exposed to only 5.5% of the CPM in the first year. The steel industry will also receive additional assistance through the $300m Steel Transformation Plan to support investment and innovation. A reduced level of assistance will be available for industries with lower levels of emissions intensity and trade exposure, whereby a free carbon unit allocation will be granted to qualifying businesses, starting at 66% of their carbon emissions. This leaves such businesses exposed to only 34% of the CPM in the first year. Free carbon units allocations will gradually reduce over time. |
|
$1.2b Clean Technology Program
|
Competitive grants will be available to qualifying companies to assist with the cost of capital upgrades to reduce energy and emissions intensity of manufacturing operations. A co-contribution will be required by the grant applicant. |
|
$1.3bn Coal Sector Jobs Package
|
Assistance to help the coal mining industry to implement carbon abatement technologies for mines that generate the most carbon emissions. |
| $70m Coal Mining Abatement Technology Support Package | Assistance for the research, development, and deployment of emissions abatement technologies for coal mining. |
| LNG Projects | An effective free allocation of carbon units representing 50% of the expected carbon emissions will be granted |
Further, the government has announced the establishment of two bodies to assist businesses in the reduction of carbon emissions.
The Clean Energy Finance Corporation will be established to provide financial assistance towards the commercialisation and deployment of renewable energy, energy efficiency and low-pollution technologies. The Clean Energy Finance Corporation has been allocated $10 billion from the revenue of the CPM to support these measures.
The Australian Renewable Energy Agency has been established to provide early-stage grants and financing assistance for renewable energy projects and energy efficiency technologies. The agency has been allocated $4 billion for this purpose.
Please feel free to contact Grant Thornton’s climate change team or your usual Grant Thornton advisor if you require further details or have any questions.
Mark Azzopardi (Tax enquiries)
National Head of Tax
T +61 3 8663 6200
E mark.azzopardi@au.gt.com
Tony Markwell (Business advisory enquiries)
National Head of Privately Held Business
T +61 7 3222 0291
E tony.markwell@au.gt.com
Andrew Archer (Audit and financial reporting enquiries)
National Head of Audit & Assurance
T +61 2 8297 2528
E andrew.archer@au.gt.com
Brian O'Meara (Enviornment and industry assistance enquiries)
Associate Director - Privately Held Business
T +61 3 8663 6257
E brian.omeara@au.gt.com
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