Australian tax incentives your business should know about

During the past two years, federal and state governments have provided significant support and incentives to help businesses navigate COVID-19. But there are other tax incentives available to businesses that you should be aware of.

To help you better understand what’s available to your business, we have compiled a succinct overview of other tax incentives that may be worth investigating.

Innovation incentives

1. Research and Development (R&D)

The R&D incentive encourages companies to engage in innovative activities by offsetting some of the costs of eligible R&D activities, up to $150 million per year.

For R&D activities conducted from 1 July 2021, the offset will be equal to:

• The corporate tax rate of 30% for bigger companies or 25% for smaller companies plus an 18.5% premium (being a 43.5% refundable tax offset) for companies with an annual turnover of less than $20 million; or
• the corporate tax rate plus an 8.5% or 16.5% incremental premium based on R&D density (a percentage of eligible R&D expenditure as proportion of total expenditure for the year) for companies with an annual turnover of $20 million or more.

Practically this means R&D densities up to 2% would have either a 38.5% or 33.5% non-refundable offset and for R&D densities over 2%, the non-refundable offset would be either 46.5% or 41.5%.

For R&D activities conducted before 1 July 2021, the offset will be equal to:

• 43.5% refundable tax offset for companies with an annual turnover of less than $20 million; and
• 38.5% non-refundable tax offset for companies with an annual turnover of $20 million or more.

2. Patent Box Regime

This incentive encourages investment in Australian medical and biotech technologies and is proposed to apply from 1 July 2022.

The incentive will mean that Australian medical and biotech patents will be subject to 17% tax on income. Normally, corporate income is either taxed at 30% or 25%.

3. Early stage innovation company (ESIC)

ESIC supports investments in start-up businesses. It consists of a 20% non-refundable carry forward tax offset of the amount invested, capped at $200,000 per year.

Other incentives include:

• Modified Capital Gains Tax (CGT) treatment to disregard capital gains on qualifying shares held for at least 12 months but less than ten years; and
• To disregard capital losses on such shares.

Business incentives

1. Full expensing of depreciating assets (FEDA)

This incentive encourages businesses to make further investments. Eligible businesses with aggregated turnover of less than $5 billion can deduct the full cost of eligible depreciating assets. The incentive applies up to 30 June 2023.

2. Self-assessment of effective life of depreciating intangible assets

This incentive enables taxpayers to bring forward deductions on certain intangible assets if they self-assess the assets have a shorter effective life than the current statutory life.

It will apply from 1 July 2023 and self-assessment will be available for patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.

3. Loss carry-back rules

This incentive provides more options for companies to improve their cash flow by utilising their losses up to 30 June 2023.

Pursuant to the incentive, companies with aggregated turnover of less than $5 billion can carry-back tax losses from the current income tax year to offset previously taxed profits as far back as the 2019 income tax year.

Industry specific incentives

1. Digital games tax offset

Proposed to apply from 1 July 2022, this incentive encourages international businesses to develop digital games in Australia. The incentive offers a 30% refundable tax offset for qualifying Australian games expenditure for a minimum investment of $500,000. Games with gambling elements are excluded from this incentive.

2. Film concessions

There are three refundable offsets available to help stimulate the Australian film industry:

• Producer offset of 40% for feature films and 20% for other films of the qualifying Australian production expenditure (QAPE).
• Location offset of 16.5% of the company’s total QAPE on the film.
• Post, digital and visual (PDV) offset of 30% of the company’s QAPE that relates to PDV effects.

3. Brewers and distillers tax relief

Aimed at supporting jobs and further growth in Australia’s alcohol manufacturing sector, this incentive enables eligible brewers and distillers to receive full remission from 60% of any excise paid on alcohol produced, up to a cap of $350,000 (increased from $100,000).

With over 600 AusIndustry grants available for businesses in Australia, your Crowe representative can help connect your business to over $230B worth of government funding and incentives.

To find out more, get in touch with our dedicated Research and Development and Incentives teams, who can assist you with any questions you may have.