Australia has long welcomed foreign investment to support economic growth and innovation. Ease of doing business, sound governance and strong institutions have been the hallmarks of Australia’s foreign investment attractiveness. In this Budget, the Government has taken a proactive position to further promote Australia’s appeal to foreign investors.
A new early engagement ‘concierge’ service with ATO for inbound investors
To provide inbound investors with an increased level of certainty, a new early engagement process with the ATO will incorporate access to expedited private rulings and advance pricing agreements. It will integrate with the tax aspects of the Foreign Investment Review Board approval process and timeframes (as required) for the investor to provide information once.
Simplifying tax residency rules for individuals
The individual tax residency rules will be replaced by a new framework with a primary physical presence test.
Under the new primary test, a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident for tax purposes. Individuals who do not meet the primary test will be subject to secondary tests that consider a combination of physical presence and other measurable, objective criteria. The new framework is based on recommendations made by the Board of Taxation in the 2019 report Reforming individual tax residency rules — a model for modernisation. The measure will have effect from the 1 July following assent of the enabling legislation.
An individual who is employed overseas for more than two years, has accommodation available to him at the place of employment throughout, and spends less than 45 days in Australia during each income year of the overseas employment period, would be a non-resident during the overseas employment period.
Enhancing the Employee Share Scheme rules
Employees under employee share schemes (ESS) will no longer be taxed on their deferred ESS interests when they cease employment.
The taxing point for deferred ESS interests will now be the earliest of the point in time when there is no forfeiture risk or disposal restrictions on the shares provided, or 15 years from the date of receiving the interest. This may offer the benefits of upfront taxation to some employees.
Assisting and rewarding innovative business in Australia
The Government has announced several measures centered on assisting and rewarding businesses that are willing to develop and implement the latest technological innovations into their day-to-day operations.
The introduction of Patent Box will see income derived in respect of Australian medical and biotech patents taxed at a concessional rate of 17% from the 2022-23 income year. This may be extended to the clean energy sector. This could see such companies save up to 13% in income tax. The concessional income tax rate applies to the proportion of the research and development conducted in Australia (as opposed to overseas) and applies to patents granted from the Budget date. Taxpayers will be able to self-assess the effective life of certain depreciable intangible assets including, patents, registered designs, in-house software, licenses, and telecommunications site access rights. This may increase depreciation deductions for businesses after 1 July 2023.
Incentives for AI and Digital Gamers
As part of the Government’s $1.2m billion Digital Economy Strategy, $45 million over five years in grants will be contributed to small businesses and community projects in an effort to develop artificial intelligence (AI) based solutions and build AI capabilities in regional areas. Furthermore, digital games developers may be entitled to a 30% refundable tax offset from 1 July 2022. Specific details will be provided after stakeholder consultation.
Tax loss carry back rule
The loss carry-back rule will be extended for another 12 months. The rule allows companies to carry back losses that were incurred in the 2019-20, 2020-21 or 2021-22 income years where the company had an aggregated turnover of less than $5 billion.
Temporary expensing of depreciable assets in full
Businesses with an aggregated annual turnover of less than $5 billion will be able to deduct the full cost of eligible capital assets acquired from 7.30pm 6 October 2020 AEDT and first used or installed by 30 June 2023. Full expensing in the first year of use of the capital assets will apply to new depreciable assets and also to the costs of improvements to existing eligible assets.
List of exchange of information jurisdictions to be updated
The list of jurisdictions that have an effective information sharing agreement with Australia will be updated. The following countries will be added to the existing jurisdictions: Armenia, Cabo Verde, Kenya, Mongolia, Montenegro and Oman. Residents of listed jurisdictions will be eligible to access the reduced managed investment trust withholding rate of 15% on certain distributions, instead of the default rate of 30%. The updated list will be effective from 1 January 2022.
Changes to offshore banking unit regime
Concessional tax treatment for offshore banking units (OBUs) will be removed.
The concessional 10% effective tax rate applying to income derived from eligible offshore banking activities will be removed. Existing OBUs will have access to the concessional tax rate until the end of the 2022–23 income year. The withholding tax exemption for interest and gold fees paid by OBUs on certain offshore borrowings will be removed from 1 January 2024. The OBU regime will also be closed to new entrants from 26 October 2018. The government will consult on alternative measures to support the industry and ensure activity remains in Australia.