The Carbon Tax Introduction, Key Details Australian Small Business Start-ups Must Be Aware Of Before July 1 2011: Tax Advice

The carbon tax: What your business must know

By Michelle Hammond
Monday, 18 June 2012

feature-carbon-tax-thumbThe carbon tax has been a contentious issue in the Australian business community since the Federal Government announced shortly after the last election that it will come into effect on July 1 this year.


But regardless of how you feel about the tax, with less than two weeks until its launch you need to be ready for it. According to a recent MYOB survey, 42% of SMEs still don’t have a good grasp of how the tax could affect them.


“This is a major piece of legislation that will have a lasting effect on all business owners,” MYOB chief executive Tim Reed says.


“What many don’t realise is that the carbon tax could very well be a positive experience for those who take action now.”


“Business owners must recognise that although the carbon tax will have flow-on effects to goods and services they need, there are practical steps that can be taken now to minimise the impact.”


Michael Schaper, deputy chair of the Australian Competition and Consumer Commission, says it’s still unclear what kind of impact the carbon tax will have on small businesses.


“Because you don’t know what the impact will be, it might be an idea to sit back and see what flows through before you make a decision,” Schaper says.


“For a lot of business owners, maybe wait and see what impact it has on your bottom line… Be calm and carry on.”


Greg Evans, director of economics and industry policy at the Australian Chamber of Commerce and Industry, agrees it will be difficult for businesses to predict the impact of the carbon tax.


“The industry impact with regard to many of the inputs they purchase will be difficult to ascertain. This will only be clear over time,” Evans says.


“Every business will also be different in terms of their energy intensity… To predict the impact on a business depends on what the business is and the supply chain of that business.”


“The next difficulty is the extent to which they’ll be able to pass on any carbon-related price increases, which depends on what their competitive position is.”


While you should follow Schaper’s advice and remain calm, it’s important to do some research.


Here are the main things start-ups need to know about the carbon tax:


1. Facts and figures


As part of the government’s Clean Energy Future Plan, the carbon tax will be introduced on July 1. Only 294 of Australia’s largest polluters will be required to pay a price on carbon, fewer than the 500 initially earmarked for the scheme.


The carbon price will start at $23 per tonne of carbon emissions. It will increase by 2.5% on July 1, 2013 and again on July 1, 2014.


From July 1, 2015, the carbon price mechanism will move to an emissions trading scheme, where the price will be flexible, and will rise and fall depending on market fluctuations.


Although the carbon price is not a direct tax on households or smaller businesses, there will be indirect impacts to consider.


The government intends to reduce these impacts through a range of tax changes, offsets and business support.


For example, 50% of the money generated from the carbon tax will compensate households for any increase in the cost of living, via tax cuts or increases to family benefits or social security.


The rest will be reinvested into clean energy technology and renewable energy projects.


Offshoot development funds will also be set up to focus on biodiversity, low carbon agriculture, small business grants and indigenous communities.


2. Key impacts for business owners


Most businesses will not be required to directly pay a carbon price. As such, most business operators are not required to undertake any compliance activity, such as counting or monitoring their carbon pollution or electricity use.


They will not have additional paperwork or forms to complete as a result of the carbon tax.


The government has also committed $240 million over the next three years to help businesses improve their energy efficiency, lower their costs, and grow their business sustainably.


Although most businesses won’t directly pay a carbon price, it will have a flow-on effect to a number of goods and services such as fuel, electricity, business travel, freight and waste removal.


Although much has been made about the negative impact the tax will have on businesses, recent research has pointed to the numerous benefits it will bring start-ups in the future, not least for those able to access the $10 billion clean energy fund that comes as part of the package.

3. Minimising the impacts


Every business in Australia will be impacted by the introduction of the carbon tax, whether directly or indirectly. Here are seven steps for preparing your business.

  1. Review your current expenses and those incurred over the past year to identify energy-intensive costs that will be affected by the inevitable energy price rises.

    Direct costs may be fuel, electricity and gas, while indirect costs may be business travel, freight and waste removal. Work with your accountant to ensure you have all your bases covered.

  2. Gain a deeper understanding of where additional costs may be incurred.

    Ask your suppliers about what they see as the effect on their business, and when they will be able to tell you what their price impacts will be.

  3. Highlight potential cost savings by exploring ways to reduce your consumption of goods and services expected to be directly and indirectly affected by the carbon tax.

  4. Consider locking in contracts with key suppliers now, at pre-carbon tax rates.

  5. Conduct an energy audit to measure your business’ carbon footprint, and identify ways in which you can reduce its direct energy consumption and costs.

  6. Review your key business processes, and identify areas where you could be operating more efficiently by changing processes, upgrading equipment or retraining staff.

  7. Analyse your current pricing and how the additional costs may impact your profit.

    This is an important step as it will give you the confidence to justify any price increases, not only to customers but also to the Australian Competition and Consumer Commission.

    The ACCC has produced the Carbon Price Claims – Guide for Business.

    This guide is designed to help businesses understand their rights and obligations, ensuring price increases are not misrepresented as being the result of the carbon tax.

4. Carbon tax complaint hotline


Business owners will certainly have to be on their toes over gouging – this week sees the launch of a new ACCC telephone hotline for carbon price complaints and inquiries.


“The ACCC is concerned that consumers may be duped into accepting a price increase for a product or service because of the carbon price, when the carbon price is actually not the cause,” ACCC chairman Rod Sims said at the hotline’s launch.


“Through the Carbon Price Claims Hotline, the ACCC invites complaints about false or misleading carbon price claims.”


“While businesses are free to set their own prices, if they make claims about the impact of the carbon price these need to be truthful and have a reasonable basis.”


The message is clear – if you raise your prices sharply and use the carbon tax as a fig leaf, be prepared to be caught out.


“If a business does move their prices – and that’s a decision entirely for the business owner to make – if they tell their customers it’s due to the carbon price, they must be able to back that up,” Schaper says.


“If you move your prices and say it’s for a variety of factors, that’s really going to be fine. If you say it’s all due to the carbon price, be aware you will need to justify that.”


“We’re not out there to police and hunt down small businesses… But be careful about what you tell your customers.”


5. Gaining a competitive advantage


According to MYOB, the introduction of the carbon tax will result in opportunities for your business. In order to take advantage of these opportunities, you need to:

  • Understand the impacts of the tax on your customers. This will enable you to time your marketing and sales activities to encourage consumers to buy your products and services.

    The government will be offering personal income tax cuts and increases in pensions, allowances and benefits to help compensate for the impact of the tax on the cost of living.

    As a result, some consumers will have what they see as more disposable income and will be prepared to spend this.

    Alternatively, some may be wary of spending as they wait and see the result of energy price rises.

  • Investigate the carbon tax-related financial incentives, and federal and state/territory government programs available to businesses and those in your specific industry.

  • Consider investing in capital equipment to enable productivity increases, and take advantage of the instant tax write-offs for business assets.

  • When investigating your supply chain, search the market to identify any low-carbon products or suppliers who can assist with a more efficient, low-carbon process change.

  • If you are looking to recruit new staff, consider how you can take advantage of the significant increase in the tax-free threshold.

    The tax-free threshold will increase to $18,200 and will encourage more part-time workers to return to the workforce as it becomes more financially viable.

    Business owners could potentially draw from a larger pool of skilled people when employing new staff, while payroll for some part-time employees will be simplified.

  • With environmental responsibility becoming increasingly important in customers’ eyes, consider how you can best promote your initiatives to reduce your carbon footprint.

    For example, your website, point of sale, email signature, newsletters and social media avenues.

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