Australia's Federal Treasurer, Josh Frydenberg, has handed down a Budget aimed at economic recovery as Australia emerges from a pandemic and brief recession.
In addition to a raft of superannuation, personal tax and first home super saver reforms, the Budget measures include a number of corporate and business tax measures. Many of these corporate and business tax measures have previously been announced, or merely extend existing temporary measures, but there are some important new initiatives aimed at boosting business spending and investment in Australia.
Here is a brief summary of the key tax measures that may affect your businesses.
Revised start date for the corporate collective investment vehicle (CCIV) regime
The Government will reset the start date for CCIV regime, which will now commence on 1 July 2022. This measure was first announced in the 2016-17 Budget and proposes to introduce a new tax and regulatory framework for collective investment vehicles with a corporate structure.
CCIVs are corporate investment vehicles that provide flow through tax treatment. The measure is intended to boost the international competitiveness of the Australian managed funds industry by allowing fund managers to offer investment products using vehicles that are more familiar to overseas investors.
The tax framework for CCIVs will broadly align with the attribution tax regime for managed investment trusts (MITs). CCIVs will need to meet similar eligibility criteria as MITs. This includes being widely held and engaging primarily in passive investment activities. CCIVs are not intended to be trading vehicles. Investors in CCIVs will generally be taxed as if they had invested directly in the underlying assets.
Patent Box: Tax concession for Australian medical and biotechnology innovations
The Government has announced that it will introduce a patent box tax regime that will tax income derived by companies from patents at a concessional rate of 17%. If passed, the concession will apply from 1 July 2022.
The patent box will apply to income derived from Australian medical and biotechnology patents. Currently, profits generated from such patents is taxed at the corporate tax rate (i.e. 30% for large businesses or the lower rate for small to medium enterprises).
Patent Box: Clean energy sector
In addition to the new patent box tax regime for medical and biotechnology patents, the Government will consult on whether a patent box tax regime should also support Australia’s clean energy sector.
Upfront tax deductions for eligible depreciating assets
The Government will extend for another 12 months (until 30 June 2023) a temporary measure to allow businesses with aggregated annual turnover or total income of less than AU$5 billion to deduct the full cost of eligible depreciable assets, regardless of the value of the asset.
Self assessing the effective life of intangible depreciating assets
Taxpayers will be able to self assess the effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in house software. The effective lives of such assets are currently set by statute.
This measure is intended to commence on 1 July 2023, after the temporary upfront deduction regime ends.
Temporary loss carry back extension
The Government will extend the temporary measure to allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year.
Companies with aggregated turnover of less than AU$5 billion are eligible for the extended 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.
Employee Share Schemes: Removing ‘cessation of employment’ as a taxing point
The Government has announced that it will remove ‘cessation of employment’ as a taxing point for tax deferred Employee Share Schemes (ESS).
Currently, where the criteria is met for employees to defer their tax liability under an ESS, the deferred taxing point is the earliest of:
- Cessation of employment
- In the case of shares, when there is no risk of forfeiture and no restrictions on disposal
- In the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal
- The maximum period of deferral of 15 years
All of the deferred taxing points will be retained other than the cessation of employment taxing point.
This measure is intended to apply prospectively to ESS interests interests issued from the first income year after the amendments become law.
Removing the preferential tax treatment for Offshore Banking Units (OBUs)
The Government has announced that it will remove the concessional 10% effective tax rate under Australia’s OBU regime.
The OECD has previously raised concerns about Australia’s OBU regime. This measure is intended to address the OECD’s concerns.
Existing OBUs may be transitioned until the end of their 2022-23 income year. New entrants will be denied the concessional tax rate from 26 October 2018.
The Government will also remove the current withholding tax exemption for interest and gold fees paid by OBUs on eligible offshore borrowings. This will not commence until 1 January 2024.
Updating the list of ‘exchange of information’ countries
The Government will update the list of jurisdictions that have an effective information sharing agreement with Australia with effect from 1 January 2022. Residents of listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15% on certain distributions, rather than the default rate of 30%.
The new jurisdictions are: Armenia, Cabo Verde, Kenya, Mongolia, Montenegro and Oman.
Tax residency rules for individuals
The tax residency rules for individuals will be replaced. Under the new rules, the primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. These domestic tax residency rules will be subject to Australia’s double tax agreements.
New disclosure requirements for Not-for-profits (NFPs)
The tax law currently allows non charitable NFPs to self assess their eligibility for income tax exemptions, without an obligation to report to the ATO. From 1 July 2023, the ATO will require income tax exempt NFPs with an active Australian Business Number (ABN) to submit information relied on to self assess their eligibility for the exemption.