Federal Budget 2021-22

From 1 July 2022, a new ‘patent box’ regime will be implemented to encourage investment into, and the retention of, Australian medical and biotech companies.

Income derived from Australian medical and biotech patents will be taxed at a 17% effective concessional corporate tax rate. Normally corporate income is taxed at 30% or 25% for small and medium companies.

Qualifying base rate entities will be able to take advantage of a net tax benefit of between 8.5% and 18.5% on R&D expenditure, and a reduction of 8% on the income subsequently derived from any resulting patents. Other qualifying companies will benefit from a 8.5% to 16.5% net tax benefit on R&D expenditure (based on the new intensity threshold rules from 1 July 2021), and a 13% tax reduction on income derived from any resulting patents.

Only granted patents, which were applied for after the Budget announcement, will be eligible.

The regime aims to encourage businesses to undertake their R&D in Australia and keep patents here and will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards.

The Government will consult with industry on the design of the new patent box regime.

The government has announced a review into the Venture Capital Limited Partnership (VCLP) and Early-Stage Venture Capital Limited Partnership (ESVCLP) regimes during the course of 2021. The key objective of the review is to identify reforms which create more competitive regimes to support investment into the innovation economy.

The government has announced changes to the taxation of Employee Share Schemes (ESS) as a mechanism for attracting and retaining talent particularly for start-up and emerging businesses. Tax will be deferred until the earliest of the remaining taxing points:

- 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 restrictions on disposal;

- the maximum period of deferral of 15 years.

The change to the cessation of employment taxing point will apply to ESS interests issued on or after 1 July following Royal Assent.

A number of streamlining initiatives regarding the ESS regime will also be implemented. These include:

- removing disclosure requirements, and exempting the offer from licensing, anti-hawking and advertising prohibitions for ESS, where employers do not charge or lend to the employees to whom they offer ESS;

- increasing the value of shares that can be issued to an employee with simplified disclosure requirements, and exemptions from licensing, anti-hawking and advertising requirements, from $5,000 to $30,000 per employee per year, where employers do charge or lend for issuing employees shares in an unlisted company.

These regulatory changes will apply three months after Royal Assent of the enabling legislation.

The government has announced plans to fast-track permanent residency for 5,000 people a year through the Global Talent and Temporary Activity visas and will modernise the framework for individual tax residency.

The initiative will target high-income earners with expertise in one of seven fields including fintech and space and advanced manufacturing.

The government anticipates that these changes will attract businesses and entrepreneurs to Australia, who can then make a significant contribution to the nation’s economy and long-term prosperity by building clusters or ecosystems of excellence in priority sectors, conducting cutting-edge research and development, and filling gaps in supply chains.

New individual tax residency rules will be implemented to increase certainty and reduce compliance costs for globally mobile individuals and their employers. The new framework will replace the individual tax residency rules.

Under the new primary test, someone 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 changes will apply from 1 July 2021 following Royal Assent.

In the 2020-21 Budget, the Government announced amendments to clarify the corporate residency test to address uncertainty for foreign incorporated entities. The Government will consult on broadening this amendment to trusts and corporate limited partnerships, and seek industry’s views as part of the consultation on the original corporate residency amendments.

A new tax office ‘concierge’ system will be introduced to fast-track advice to foreign direct investors about proposed transactions or relocating to Australia.

The service will:

- accommodate specific project timeframes, and other time sensitive aspects of a transaction such as foreign investment review board (FIRB) approvals;

- integrate with the tax aspects of the FIRB approval process (if applicable) so that investors only need to provide information once;

- provide “up front” confidence to investors about how Australian tax laws will apply;

- be tailored to the particular needs of each investor;

- offer support in relation to any or all federal tax obligations; and

- where binding advice is desired, it will also incorporate access to expedited private binding rulings and advance pricing agreements.

The ATO will consult with business and other stakeholders to develop the early engagement service during May and June 2021 with the service becoming available for eligible investors from 1 July 2021.

Government plans to restart the work on the development and implementation of a new Corporate Collective Investment Vehicles (CIV) by July 2022. The Council will continue to work with Government on the development and implementation of a new Limited Partnership CIV following the Corporate CIV work.

The Board of Taxation will conduct a review of the administrative framework of the broader research and development tax incentive (RDTI) by the end of this year.

Changes to the RDTI, revealed in last year’s budget after the government reversed plans to pair back the scheme, will come into force from the next financial year.

Temporary full expensing will now be available until 30 June 2023 and will allows eligible businesses with aggregated annual turnover or total income of up to $5 billion to deduct the full cost of eligible depreciable assets. Assets must be acquired from 7:30pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.

This 12-month extension aims to encouraging eligible businesses to make further investments, the extension will continue to support the creation of jobs and the broader COVID-19 recovery.

All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income and a track-record of investment, which will continue to be available to businesses.

Treasury estimates the temporary full expensing applies to around $320 billion worth of investment, and over 99 per cent of businesses, employing 11.5 million workers, are eligible for this measure.

The Budget includes the extension of the temporary loss carry-back by one year. This will allow carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year, for eligible companies.

The loss carry-back will be available to companies with aggregated annual turnover of up to $5 billion and can be applied to tax losses incurred during the 2019-20, 2020-21, 2021-22. The 2022-23 income years can now be used to offset tax paid in 2018-19 or later years. The tax refund will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns.

Following on from the SME Guarantee Scheme, the Government has announced a new SME Recovery Loan Scheme.

The SME Recovery Loan Scheme aims to increase lenders’ ability to provide cheaper credit and allow SMEs to access additional funding or refinance existing loans at a lower interest rate. The new Scheme includes an increased government guarantee of 80 per cent, a higher maximum loan size of $5 million and maximum loan term of 10 years with interest rates capped at around 7.5 per cent. Borrowers may also be offered repayment holidays of up to 24 months on appropriate products.

The Scheme is available to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in eligible Local Government Areas in March 2021.

The Government has committed an additional $500 million, to be matched by state and territory governments, to expand the JobTrainer Fund by a further 163,000 places and extend the program until 31 December 2022. The Fund will support training in digital skills and upskilling in critical industries like aged care.

The Government will spend an additional $2.7 billion to extend the Boosting Apprenticeship Commencements program.

The demand-driven program is expected to support more than 170,000 new apprentices and trainees by paying businesses a 50 per cent wage subsidy over 12 months for newly commencing apprentices or trainees signed up by 31 March 2022. The subsidy will be capped at $7,000 per quarter per apprentice or trainee.

The extension will deliver on the Government’s commitment to building a pipeline of skilled workers by further supporting growing businesses to take on new apprentices and trainees.

This Government is also delivering pathway services for 5,000 women to commence in a non-traditional apprenticeship.

Regulatory relief has been announced for 800 foreign firms in respect of their local Australian Financial Services licence obligations. This overturns the proposed requirement by the Australian Securities & Investments Commission for foreign fund managers, foreign investment managers, foreign asset managers, offshore investment vehicles, foreign banks and foreign brokers, who wish to conduct financial services activities in Australia to have an AFS licence by 31 March 2022.

The Government will allow businesses to self‑assess the economic life of certain intangible assets (such as patents) for tax depreciation purposes. This will encourage investment and hiring in innovative activities.