The government has expanded a number of corporate tax measures aimed at providing tax breaks for businesses to improve cash flow and ultimately create jobs.
In relation to corporate income tax, the following key measures were announced:
Extension of temporary full expenses to support investment and jobs
The government will extend the full allowance (originally announced as a 2020-21 budget measure) for an additional 12 months through June 30, 2023. This is intended to support corporate investments and the creation of more jobs.
The full-cost temporary measure will still allow eligible entities with total annual sales or total income less than $ 5 billion to deduct the full cost of eligible depreciable assets of any value that were acquired and first used on October 6, 2020 from 7:30 p.m. AEDT or Installed ready for use by June 30, 2023.
The 12-month extension gives eligible companies additional time to access the incentive, including projects that require longer planning times and are affected by COVID-19-related disruptions. This will encourage companies to continue investing and further support the economic recovery in 2022-23.
All other elements of the Temporary Full Expenses remain unchanged, including the alternative aptitude test based on total income still available to the companies. From July 1, 2023, normal depreciation will apply.
Further details on the measure can be found here.
Extension of the temporary tax compensation for loss carryforwards
The government will continue to support Australia’s economic recovery and corporate investment by extending the temporary tax relief for loss carryforwards. This measure was also originally announced in the 2020-21 budget.
The extension allows eligible companies to carry back (i.e., use) tax losses from income year 2022-23 (in addition to income years 2019-20, 2020-21 and 2021-22) to offset previously taxed profits as much as possible than income year 2018 -19, in which you file your tax return for 2022-23. The loss carryforward encourages companies to invest by taking advantage of the extension of the Temporary Full Expense measure by giving eligible companies earlier access to the tax base of losses incurred through full expenses. This will help increase cash flow for companies in the years to come and support companies that have been profitable and paying taxes but have been in a losing position due to the COVID-19 pandemic.
Companies with total revenue less than $ 5 billion are eligible for temporary loss carryforwards. The tax refund is limited by the fact that it is required that the amount carried back is not higher than the previously taxed profit and that the return transport does not create a franking account deficit. Companies that do not choose to carry losses back under this measure can continue to carry losses forward as usual.
Further details on the measure can be found here.
Patent Box – Tax break for Australian innovations in medicine and biotechnology
The government will implement a patent box tax system to encourage innovation and investment in, and maintenance of, Australian medical and biotechnology. In addition, corporate income from patents is taxed at a reduced effective corporate income tax rate of 17%, with the license valid from July 1, 2022 from the income year. There are currently twenty countries with patent boxes including the UK and France.
The patent box applies to income from Australian patents for medicine and biotechnology. The government is also being discussed whether a patent box would be an effective means of supporting the clean energy sector.
Australia currently tax profits from patents at the base rate (30% for large companies and 25% for small and medium-sized companies from July 1, 2021). The patent box offers a competitive tax rate on profits from Australian and developed patents.
The need for domestic development will encourage additional investment and recruitment in research and development activities and encourage companies to develop and apply their innovations in Australia.
The government will follow the OECD guidelines on patent boxes to ensure that the patent box meets internationally recognized standards and will consult with the industry before determining the detailed design of the patent box.
Self-assessment of the useful life of intangible assets to be depreciated
The government will allow taxpayers to self-assess the tax-effective life of eligible intangible assets such as patents, registered designs, copyrights and in-house software. This measure applies to assets acquired on or after July 1, 2023 following the completion of the Temporary Full Expense Scheme.
The useful life of such assets for tax purposes is currently determined by law. If taxpayers can self-assess the tax effectiveness of an asset, the tax outcomes can be better aligned with the underlying economic benefits of the asset. In addition, the tax treatment of these assets will be aligned with that of most property, plant and equipment.
Taxpayers still have the option of using the existing statutory useful life to depreciate these assets.
This measure will allow taxpayers to choose a more reasonable useful life and encourage investment and recruitment in research and development.
Taxation of financial agreements – hedging and deregulating foreign exchange
The government will make technical changes to the taxation legislation on financial agreements that will make it easier to access hedging rules on a portfolio hedging basis. The changes aim to reduce compliance costs and correct unintended outcomes so that taxpayers are not subject to unrealized taxation on foreign exchange gains and losses unless chosen.
These changes will take effect for Relevant Transactions that close on or after July 1, 2022.
Junior Minerals Exploration Incentive extended
The government will allocate an additional $ 38.8 million over a two year period from 2023 to 2024 (and an additional $ 38.8 million over a two year period from 2025 to 2026) to support the exploration incentive program of junior minerals from July 1, 2021 to June 30, 2025 by four years.
The program provides a tax incentive to invest in junior mineral exploration companies that raise capital to fund greenfield exploration activities. Eligible companies can create exploration credits by foregoing a portion of their tax losses related to exploration expenses, which can then be distributed to new investors as a refundable tax offset or postage credit.
The government will also make minor legislative changes to allow unused exploration credits to be reallocated a year earlier than current conditions.