Foreign income tax offsets (FITOs)
FITOs are available to avoid double taxation in respect of foreign tax paid on income or gains that are 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, 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 (OBU) in Australia is taxed at the rate of 10%, but only in relation to assessments for the 2022/23 and earlier income years (note that the OBU regime has effectively been closed to new entrants since October 2018).
- 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 has applied since 1 July 2017 and extends until 30 June 2025.
In addition, temporary capital investment incentives for businesses with an aggregated turnover of up to AUD 5 billion, including an immediate tax deduction for the cost of eligible depreciating assets, were 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 from 1 July 2021, companies with an annual turnover of less than AUD 20 million can access a refundable R&D tax offset at a rate 18.5% above the claimant company's tax rate (previously it was a fixed rate of 43.5%). Companies with a turnover of at least AUD 20 million have access to a non-refundable tax offset at a rate equal to the claimant company's tax rate plus 8.5% for R&D expenditure between 0% and 2% R&D intensity and 16.5% for R&D expenditure above 2% R&D intensity (previously it was a fixed rate of 38.5%); intensity is measured as the company's R&D expenditure as a proportion of total expenses for the year. 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 150 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.
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 applies to eligible businesses and not-for-profits (NFPs) to help them stay in business and keep their employees in jobs during the COVID-19 crisis:
- A Federal wage subsidy for trainees and apprentices of certain businesses who retain an apprentice or trainee during 2020 or engage an apprentice between 5 October 2020 and 30 June 2022. Broadly, the wages subsidy for eligible employers was 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 that, during the period from 7 October 2020 to 6 October 2021, created an additional new job 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, for up to 12 months from the time they commence employment. This credit is capped to AUD 10,400 per additional new position created. The final claim period ends on 30 January 2023.
- The States and Territories had various COVID-19 cash relief and support programs in place for eligible businesses affected by COVID-19 restrictions in place during 2021. Concessional income tax treatment applied to certain declared program payments received by businesses with an aggregated turnover of less than AUD 50 million.