Written by Jason Barnes and Greg Protektor
The Government has extended a range of corporate tax measures that are focused on providing tax relief for businesses, with the aim of improving cash flows and, ultimately, creating jobs.
The following key measures have been announced in relation to corporate tax:
Extension of temporary full expensing to support investment and jobs
The Government will extend the full expensing allowance (which was initially announced as a 2020‑21 Budget measure) for a further 12 months until 30 June 2023. This is designed to support business investment and the creation of more jobs.
The temporary full expensing measure will continue to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
The 12‑month extension will provide eligible businesses with additional time to access the incentive, including projects that require longer planning times and those affected by COVID-19 related supply disruptions. This will encourage businesses to make further investments and continue to support economic recovery in 2022‑23.
All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses. From 1 July 2023, normal depreciation arrangements will apply.
Further details of the measure can be found here.
Extension of temporary loss carry-back tax offset
The Government will further support Australia's economic recovery and business investment by extending the temporary loss carry-back tax offset. This measure was also initially announced in the 2020‑21 Budget.
The extension will allow eligible companies to now carry back (i.e. utilise) tax losses from the 2022‑23 income year (in addition to the 2019-20, 2020-21 and 2021-22 income years) to offset previously taxed profits as far back as the 2018‑19 income year when they lodge their 2022‑23 tax return. Loss carry‑back encourages businesses to invest, utilising the extension of the temporary full expensing measure by providing eligible companies earlier access to the tax value of losses generated by full expensing deductions. This will help increase cash flow for businesses in future years and support companies that were profitable and paying tax but find themselves in a loss position as a result of the COVID-19 pandemic.
Companies with aggregated turnover of less than $5 billion are eligible for temporary loss carry‑back. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry‑back does not generate a franking account deficit. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Further details of the measure can be found here.
Patent box – tax concession for Australian medical and biotechnology innovations
The Government will introduce a patent box tax regime to encourage innovation and investment in, and the retention of, Australian medical and biotechnologies. It will do so by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, with the concession applying from income years starting on or after 1 July 2022. Over twenty countries currently have patent boxes, including the UK and France.
The patent box will apply to income derived from Australian medical and biotechnology patents. The Government will also consult on whether a patent box would be an effective way of supporting the clean energy sector.
Australia currently taxes profits generated by patents at the headline corporate rate (30% for large businesses and 25% for small to medium enterprises from 1 July 2021). The patent box will offer a competitive tax rate for profits generated from Australian owned and developed patents.
The requirement for domestic development will encourage additional investment and hiring in research and development activity and encourage companies to develop and apply their innovations in Australia.
The Government will follow the OECD's guidelines on patent boxes to ensure the patent box meets internationally accepted standards and will consult with industry before settling the detailed design of the patent box.
Self-assessing the effective life of intangible depreciating assets
The Government will allow taxpayers to self‑assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in‑ house software. This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.
The tax effective lives of such assets are currently set by statute. Allowing taxpayers to self‑assess the tax effective life of an asset will allow for a better alignment of tax outcomes with the underlying economic benefits provided by the asset. It will also align the tax treatment of these assets with that of most tangible assets.
Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.
This measure will allow taxpayers to adopt a more appropriate useful life and encourage investment and hiring in research and development.
Taxation of Financial Arrangements – hedging and foreign exchange deregulation
The Government will make technical amendments to the Taxation of Financial Arrangements legislation which will include facilitating access to hedging rules on a portfolio hedging basis. The amendments seek to reduce compliance costs and correct unintended outcomes, so that taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless this is elected.
These changes will take effect for relevant transactions entered into on or after 1 July 2022.
Junior Minerals Exploration Incentive extended
The Government will provide an additional $38.8 million over two years from 2023‑24 (and a further $38.8 million over two years from 2025‑26) to extend the Junior Minerals Exploration Incentive program for four years from 1 July 2021 to 30 June 2025.
The program provides a tax incentive for investment in junior minerals exploration companies that are raising capital to fund green-fields exploration activity. Eligible companies are able to create exploration credits by giving up a portion of their tax losses relating to exploration expenditure, which can then be distributed to new investors as a refundable tax offset or a franking credit.
The Government will also make minor legislative amendments to allow unused exploration credits to be redistributed a year earlier than under current settings.