Patent Box – Extension to agri and clean tech

Hot on the heels of the introduction of the Patent Box bill into Parliament on 10 February 2022 (see our earlier insight here), the Government has announced that the Patent Box will be expanded beyond the medical and biotechnology sectors (the scope of the current bill) to agricultural and low emissions technology innovations.

Further consultation will be undertaken with industry, but the expanded patent box will cover eligible income derived from:

• Patents linked to agricultural and veterinary chemical products listed on the Australian Pesticides and Veterinary Medicines Authority’s Public Chemicals Registration Information System, or eligible Plant Breeder’s rights.
• Patented technologies which have the potential to lower emissions. Patents relating to low emissions technology, as set out in the 140 technology areas listed in the Government's 2020 Technology and Investment Roadmap Discussion Paper or included as priority technologies in the Government's 2021 and future annual Low Emissions Technology Statements, will be within scope, provided the patented technology is considered to reduce emissions.

A concessional effective tax rate of 17% will apply to eligible income from patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023. In comparison, Australia’s current corporate income tax rate is 30% or 25% for certain small business entities.

We expect the expansion of the patent box to these new industries will follow the framework in the current bill which remains before Parliament. Accordingly, among other restrictions, taxpayers will only be able to benefit from the concessional rate to the extent the underlying R&D was undertaken by the taxpayer in Australia in order to comply with OECD substance requirements for preferential tax regimes. For further detail read our insight on the current bill here.

Patent Box – Expanded eligibility for medical and biotech patents

The Federal Budget confirms that medical and biotechnology patents granted or issued after 11 May 2021 will be eligible for the Patent Box. Furthermore, eligibility for the patent box is no longer limited to owners of Australian patents, but has been extended to owners of utility patents issued by the United States Patent and Trademark Office and European patents granted under the Convention on the Grant of European Patents. These changes are reflected in the bill currently before Parliament (see our insight on the bill here). With a fast-approaching Federal Election, it is hoped that the bill will be prioritised over the remaining sitting days.

ATO's Tax Avoidance Taskforce Extended

The Government announced that the Tax Avoidance Taskforce (Taskforce) will be extended by two years until 30 June 2025, with additional funding of AUD 325 million in 2023-24 and AUD 327.6 million in 2024-25. 

The Government established the Taskforce in 2016 to undertake compliance activities targeting the tax affairs of multinationals, large public and private groups, trusts and high wealth individuals. It also scrutinises specialist tax advisors and intermediaries that promote tax avoidance schemes.

With a strong focus on Top 1000 public and multinational businesses and the Top 500 privately owned groups (groups making up over two thirds of all corporate tax), the Taskforce aims to detect tax avoidance, protect revenue and maintain integrity in the Australian tax system. With the Taskforce obtaining additional funding, such groups will continue to face dedicated compliance resources directed towards their structures and affairs.

Extension of instant asset write-off and tax loss carry-back

In response to the COVID-19 pandemic, the Government previously introduced accelerated depreciation deductions and an expansion of the instant asset write-off, which was extended to 30 June 2023. The accelerated depreciation deductions allow businesses with annual turnover below AUD 5 billion to immediately deduct the full cost of eligible assets used or ready for use by 30 June 2023. This can work in combination with the loss carry-back scheme, which allows companies to obtain a tax offset or refund by offsetting losses against previously taxed profits derived in earlier years.

Government continues to deregulate and streamline fuel and alcohol industries

The Government is providing benefits to the fuel and alcohol industries through deregulation, and by streamlining the administration of excise and excise-equivalent customs duty. The changes will reduce the administrative overheads incurred by businesses in these industries, and help support growth in Australia's fuel and alcoholic beverage manufacturing sector.

In summary, from 1 July 2023, these changes will:

• Enable fuel and alcohol businesses with a turnover of less than AUD 50 million to lodge and pay excise and excise-equivalent customs duty on a quarterly basis (rather than weekly or monthly).
• Enable businesses that import fuel and alcohol products for further manufacture or distribution, and want to defer payment of excise or excise-equivalent customs duty, to transfer the products straight into a warehouse administered by the Australian Taxation Office (ATO) once the products have passed through Australian Border Force (ABF) customs clearance. 
• Streamline licensing requirements across the excise system by:
  • Removing all renewal requirements for excise and excise-equivalent customs goods licences; removing licence fees; enabling the ATO and ABF to issue entity-level licences in addition to site-level licences; and providing blanket permission to move goods between sites controlled by licensed businesses.
  • Extending the time limit to apply for a refund of excise overpayments from 12 months to four years after payment, to align with refunds of customs duty.
• In respect of the excise-equivalent customs duty regime for fuel, introduce a refund provision, similar to that in the excise law, for excise-equivalent customs duty on petroleum-based oils used in the further manufacture of petroleum lubricants, purportedly ending double taxation of these oils.
• Provide a targeted exemption from excise licensing requirements, up to a threshold of 10 thousand litres per year, for licensed hospitality venues to fill beer from kegs into sealed, non-pressurised containers of no more than two litres capacity and not designed for medium to long term storage.

Small business tax concessions

The Government is introducing tax incentives to support small businesses, with an aggregated annual turnover of less than AUD 50 million, to adopt digital technologies and train and upskill their employees.

• Under the Technology Investment Boost, small businesses will be able to deduct an additional 20% of the cost of business expenses and depreciating assets that support digital uptake, up to AUD 100 thousand of expenditure per income year. This will apply to eligible expenditure incurred between 29 March 2022 and 30 June 2023 and will support investment in digital items such as cloud computing, cyber security, accounting and e-invoicing software and web page design.
• Under the Skills and Training Boost, small businesses will also be able to deduct an additional 20% of the expenditure incurred on external training courses provided to their employees. This will apply to eligible expenditure incurred between 29 March 2022 and 30 June 2024. The external training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

Primary producers – increasing concessional tax treatment for Australian Carbon Credit Units (ACCUs) and biodiversity certificates

From 1 July 2022, eligible primary producers will be able to treat the proceeds of sale of ACCUs and biodiversity certificates generated from on-farm activities as primary production income for the purposes of the Farm Management Deposits (FMD) scheme and tax averaging. The government will also vary the taxing point of ACCUs for eligible primary producers to the year of sale, with a similar treatment also promised for biodiversity certificates.

Under the current system, proceeds from selling ACCUs are treated as non-primary production income and are generally ineligible for concessional treatment under the FMD scheme or tax averaging. ACCU holders are also taxed based on changes in the value of their ACCUs each year, which may result in tax liabilities prior to the time of sale.

These measures will bolster the already existing concessional arrangements for eligible primary producers. Under the FMD scheme, eligible primary producers can defer their income tax liability by depositing eligible amounts into an eligible FMD account. Deposits that are deductible under the FMD scheme reduce a primary producer’s taxable primary production income in the year they are made, while amounts withdrawn from the FMD account are included in their assessable income in the year withdrawn. Under tax averaging arrangements, income tax payable by eligible primary producers over a maximum five year period is "evened out" through a combination of tax-offsets and additional tax payable over the relevant period.

Fuel excise relief

The fuel excise will be halved along with the excise-equivalent customs duty rate that applies to petrol and diesel for six months, commencing 30 March 2022. The excise and excise-equivalent customs duty rates for all other fuel and petroleum based products, except aviation fuels, will also be reduced by 50% for six months.

Australia-UK Free Trade Agreement

The Budget provided an update on the projected financial impact of the Australia-UK Free Trade Agreement (FTA) which was signed at the end of 2021 and is expected to enter in force during 2022. The FTA is stated to eliminate tariffs on over 99% of Australian goods exports to the UK (valued at approximately AUD 9.2 billion). Specifically, the FTA will provide for:

• A guaranteed right for Australian businesses to bid for more UK government contracts in a procurement market that is estimated to be AUD 500 billion annually.
• Australian professionals to have the same access to the UK jobs market as other professionals in Europe (except for the Republic of Ireland) and an increase in the age up to which individuals can have working holidays from 30 to 35 years age with stays for up to three years.
• Removal of tariffs on most UK goods imported into Australia on the entry into force of the FTA, with tariffs on goods such as cars, whisky, confectionery, biscuits and cosmetics being phased out within five years.
• Amendments to the current Film Co-production Agreement between Australia and the UK.
• A tariff-free quota for Australian beef and sheep meat that increases over 10 years (after which time such tariffs will be removed). Similarly, Australian sugar will also have a tariff-free quota that increases over an eight year period after which sugar tariffs will be removed.
• Removal of AUD 43 million of customs duties on Australian wine.

The Budget estimates that the FTA will decrease government receipts by AUD 100 million over the period to 2025-26, with an estimated increase in receipts by the ATO being offset by decreased receipts by the Department of Home Affairs. In addition, the FTA is estimated to increase government payments by AUD 71.7 million over the same period, largely driven by payments made by the Department of Treasury.