Foreign income tax offsets (FITOs)
FITOs are available to avoid double taxation in respect of foreign tax paid on income that is assessable in Australia. Generally, a corporation will be entitled to claim a FITO where it has paid, or is deemed to have paid, an amount of foreign income tax and the income or gain on which the foreign income tax was paid is included in assessable income for Australian tax purposes.
The amount of the FITO available is limited to the greater of AUD 1,000 and the amount of the 'FITO limit'. The FITO limit is broadly calculated as the difference between the corporation's actual tax liability and its tax liability if certain foreign taxed and foreign-sourced income and related deductions were disregarded. Excess FITOs are not able to be carried forward and claimed in later income years.
Inward investment incentives
Depending on the nature and size of the investment project, state governments may give rebates from payroll, stamp, and land taxes on an ad hoc basis and for limited periods.
Capital investment incentives
Incentives for capital investment are as follows:
- Accelerated deductions are available for capital expenditures on the exploration for and extraction of petroleum and minerals (other than mining rights and information acquired from a non-government third party that start to be held after 7.30pm [AEST] 14 May 2013, which are claimed over the shorter of 15 years and the life of the asset), the rehabilitation of former mineral extraction sites, certain environmental protection activities, the establishment of certain 'carbon sink' forests, certain expenditure of primary producers, and for certain low cost depreciating assets held by small business entities.
- There are a number of tax concessions aimed at encouraging investments in the venture capital sector. Non-resident pension funds that are tax-exempt in their home jurisdiction and satisfy certain Australian registration requirements are exempt from income tax on the disposal of investments in certain Australian venture capital equity held at risk for at least 12 months. A similar exemption is extended to other tax-exempt non-resident investors, including managed funds and venture capital fund-of-funds vehicles and taxable non-residents holding less than 10% of a venture capital limited partnership. These investors are able to invest in eligible venture capital investments through an Australian resident venture capital limited partnership or through a non-resident venture capital limited partnership. Eligible venture capital investments are limited to specified interests in companies and trusts. Detailed rules in the legislation prescribe the nature of such investments and the characteristics, which such companies and trusts, and their investments, must possess.
- Investors in an Australian Early Stage Innovation Company (ESIC), broadly a company that is at an early stage of establishment to develop new or significantly improved innovations with the purpose of commercialisation to generate an economic return, are provided with a non-refundable carry forward tax offset equal to 20% of the amount paid for the investment, subject to a cap, and a capital gains tax exemption for shares that have been held for between one and ten years.
- There is a venture capital tax concession applicable to an 'early stage venture capital limited partnership' (ESVCLP). The thresholds for qualification include requirements that, amongst other things, the committed capital of the ESVCLP must be at least AUD 10 million but not exceed AUD 200 million, the investments made must fall within prescribed parameters as to size and proportion of total capital, and the ESVCLP must have an investment plan approved by Innovation Australia. Where the thresholds for their application are met, the ESVCLP provisions provide flow-through tax treatment to domestic and foreign partners, with the income and capital received by the partners exempt from taxation. As the income is tax exempt, the investor is not able to deduct investment losses.
- The taxable income derived from offshore banking transactions by an authorised offshore banking unit in Australia is taxed at the rate of 10%.
- Refundable tax offsets are available to companies for certain expenditure incurred in Australia in producing specified classes of film or undertaking specified post, digital, or special effects production activities in respect of specified classes of films. The concessions are only available to a company that is either an Australian resident or a non-resident carrying on business through an Australian PE and which has been issued with an Australian Business Number (ABN). The availability of the offsets is subject to a number of conditions, including meeting registration and minimum spend requirements. The rate of the offset varies from 16.5% to 40%, depending upon the nature of the relevant film and activities undertaken.
- The Junior Minerals Exploration Incentive (JMEI) enables eligible minerals exploration companies to generate tax credits for new shareholders by giving up a portion of their tax losses from greenfield mineral exploration expenditure, which can then be distributed to shareholders. The scheme applies from 1 July 2017 until 30 June 2021, with total credits limited to AUD 100 million.
In addition, temporary capital investment incentives for businesses with an aggregated turnover of up to AUD 500 million have been introduced as part of the Federal Government’s economic response to COVID-19. See the Deductions section for more information.
R&D tax offset
For income years commencing before 1 July 2021, companies with an annual turnover of less than AUD 20 million can access a 43.5% refundable R&D tax offset. Companies with a turnover of at least AUD 20 million have access to a non-refundable 38.5% tax offset. The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity's notional R&D deductions that exceed AUD 100 million in the income year.
Generally, only genuine R&D activities undertaken in Australia qualify for the R&D tax incentive. However, R&D activities conducted overseas also qualify in limited circumstances where the activities cannot be undertaken in Australia. Special grant programmes also may be available to assist corporations in the conduct of certain R&D in Australia. These grants are awarded on a discretionary basis.
The government has enacted changes to the R&D incentive for income years commencing on or after 1 July 2021:
- For companies with aggregated annual turnover of less than AUD 20 million, the refundable R&D tax offset will be set at 18.5% above the claimant’s company tax rate.
- For larger companies with aggregated annual turnover of AUD 20 million or more, the non-refundable R&D tax offset will be the claimant’s company’s tax rate plus:
- 8.5% for R&D expenditure between 0% and 2% R&D intensity (the company’s R&D expenditure as a proportion of total expenses for the year) and
- 16.5% for R&D expenditure above 2% R&D intensity.
The R&D expenditure cap will also increase from AUD 100 million to AUD 150 million per annum for income years commencing on or after 1 July 2021.
Cash grants for export-market development expenditure are available to eligible businesses seeking to export Australian-source goods and services.
The following temporary cash flow assistance is available for eligible businesses and not-for-profits (NFPs) to help them stay in business and keep their employees in jobs during the COVID-19 crisis:
- JobKeeper wage subsidy to help businesses keep staff employed. The initial subsidy, which applied from 30 March 2020 through to 27 September 2020, was AUD 1,500 per fortnight, per eligible employee, and available to eligible businesses (both employers and eligible self-employed arrangements) that forecast a substantial decline in turnover of 30% or more (or 50% or more for a business with an aggregated turnover of more than AUD 1 billion). The JobKeeper wage subsidy was extended for an additional six months from 28 September 2020 through to 28 March 2021, but with a lower two-tier payment structure and a requirement for employers to retest eligibility based on actual decline in turnover. The two-tier payments are categorised as follows:
- AUD 1,200 per fortnight (reducing to AUD 1,000 per fortnight from 4 January 2021) per eligible employee or business participant that worked 80 hours or more during a 28-day reference period.
- AUD 750 per fortnight (reducing to AUD 650 per fortnight from 4 January 2021) for all other eligible employees or business participants.
- Cash flow boost to provide amounts of at least AUD 20,000 and up to AUD 100,000 (by way of credit against other business taxes) for businesses that have aggregated turnover of less than AUD 50 million and that have employees. The payments were only available to active eligible employers established prior to 12 March 2020 and were generally delivered, subject to meeting relevant requirements, during the period from April to October 2020.
- Wage subsidy for trainees and apprentices provides a further cash flow boost for certain businesses who retain an apprentice or trainee during 2020 or engage an apprentice between 5 October 2020 and 30 September 2021. Broadly, the wages subsidy for eligible employers is calculated at 50% of the apprentice’s or trainee’s wage paid, up to a maximum of AUD 7,000 per quarter per eligible apprentice or trainee.
- The JobMaker Hiring Credit available to eligible employers from 7 October 2020 to 6 October 2021 for each additional new job that is created for an eligible employee who is aged under 35 years. Employers will receive AUD 200 per week for an eligible employee aged 16 to 29 years, or AUD 100 per week for an eligible employee aged 30 to 35 years. This credit is capped to AUD 10,400 per additional new position created.