The Government has introduced 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.
Temporary loss carry-back tax offset
The Government has reintroduced loss carry-back provisions. These seek to will promote economic recovery by providing cash flow support to previously profitable companies that have fallen into a tax loss position as a result of the currently weaker economic conditions (themselves associated with the economic impact of COVID-19) until they become profitable again. A tax offset was previously introduced by the Labor Government in Australia for the 2012–13 income year but was later repealed in 2014.
Currently, companies are required to carry losses forward to offset profits in future years. Under the new measures, the Government will allow corporate tax entities with an aggregated turnover of less than $5 billion to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later income years, thus generating a refundable tax offset in the year in which the loss is made. Essentially, the loss carry-back provisions permit a company to apply current-year tax losses to recover tax paid in prior years. Any tax refund will be 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.
The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Companies that do not elect to carry back losses under this measure can still carry losses forward as per the usual rules.
The introduction of loss carry-back rules is consistent with the approach adopted by other countries. New Zealand recently introduced a temporary loss carry-back scheme in light of the COVID-19 pandemic, with other countries such as the United States and the United Kingdom also allowing once-profitable businesses to use current losses to offset profits made the year before.
Temporary full expensing to support investment and jobs
The Government will support businesses with aggregated annual turnover of less than $5 billion by enabling them to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2022. It will be available to around 3.5 million businesses (over 99% of businesses) that employ around 11.5 million workers. The incentive will apply to around $200 billion worth of investment, including 80% of investment in depreciable assets by non-mining businesses.
Full expensing in the year of first use or installation ready for use will apply to new depreciable assets and the cost of improvements to existing eligible assets.
For businesses with aggregated annual turnover of less than $50 million, full expensing also applies to second-hand assets.
Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will also have an extra six months, until 30 June 2021, to first use or install those assets.
Small businesses (with aggregated annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year while full expensing applies. The provisions which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended.
This full expensing builds on the enhanced instant asset write-off and the accelerated depreciation previously announced under the Backing Business Investment incentive. It is intended to improve cash flow for qualifying businesses that purchase eligible assets and bring forward new investment by reducing the after-tax cost of eligible assets. In particular, it creates an incentive for businesses to bring forward investment before it expires.
R&D tax breaks
The Government will enhance previously announced reforms to the Research and Development (R&D) tax incentive to support greater R&D in Australia and to help businesses manage the economic impacts of the COVID-19 pandemic.
For companies with aggregated annual turnover of less than $20 million, the Government will increase the refundable R&D tax offset to 18.5% above the claimant's company tax rate. The Government will also not proceed with the $4 million cap on annual cash refunds.
For companies with aggregated annual turnover of $20 million or more, the Government will:
- reduce the number of intensity tiers from three to two. This will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D; and
- increase the non-refundable R&D tax offset rates. The new rates will be the claimant's company tax rate plus 8.5% for R&D expenditure up to 2% R&D intensity, and the claimant's company tax rate plus 16.5% for R&D expenditure above 2% R&D intensity.
The Government will defer the start date so that all changes to the R&D program apply to income years starting on or after 1 July 2021.
All other aspects of the previously announced measures will remain unchanged, including the increase to the cap on eligible R&D expenditure from $100 million to $150 million per annum.
Retraining and reskilling workers
The Government will introduce an exemption from the 47% fringe benefits tax (FBT) for employer provided retraining and reskilling benefits provided to redundant, or soon to be redundant employees where the benefits may not be related to their current employment (such as employees who are to be redeployed to a different role in the business). This measure applies from 2 October 2020.
Currently, FBT is payable if an employer provides training to redundant, or soon to be redundant, employees and that training does not have sufficient connection to their current employment. For example, a business would be liable to pay FBT if it provided web design training to a sales assistant, to help them take on an online marketing role. This measure will provide an FBT exemption for a broader range of retraining and reskilling benefits, incentivising employers to retrain redundant employees to prepare them for their next career.
The exemption will not extent to employer-provided retraining and does not extend to retraining programs acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth-supported places at universities, which already receive a benefit, or extend to repayments towards Commonwealth student loans.
The Government will also consult on potential changes to allow an individual to deduct education and training expenses they incur themselves where the expense is not related to their current employment. Individuals can currently deduct education or training expenses they incur which are sufficiently related to their current employment. The current system may act as a disincentive for Australians to retrain and reskill to support their future employment and career. The Government will consult on potential changes to the current arrangements to determine whether deductions should also be targeted to future employment and skills needs.