The Federal government has released draft legislation centred on providing companies with access to past year tax losses to reduce taxable income, in a bid to incentivise and reward innovation.
The Exposure Draft Bill [PDF] contains proposed amendments to the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, in order to improve companies’ access to previous losses in claiming a reduction for taxable income despite a changed ownership.
Under the current regulations, businesses that have changed ownership must satisfy the ‘same business test’ to access past year tax losses – a process the government branded as obstructive and stifling innovation in the economy.
Rather, the draft legislation suggests “same business test” be exchanged for a “similar business test” for the purpose of determining whether a company’s tax losses from previous income years can be utilised. In effect, the new amendments intend to remove the “no new transactions or business activities” aspect of the same business test. The draft legislation describes that a company will pass the similar business test if its current business is a similar business to its previous business. This will depend on the extent to which the company produces assessable income from the same assets and sources, and whether any changes to the business are changes that would realistically be expected to have been made to a similarly placed business.
The legislation draft forms part of the government’s Innovation and Science Agenda it unveiled in December. Ultimately, the new measures proposed aim to encourage entrepreneurship by allowing loss making companies to ‘pivot’ and seek out new opportunities to return to profitability. These proposed changes, coupled with the new tax incentives for start-ups and investors and the existing R&D Tax Incentive, reveals that the innovative environment in Australia is indeed growing.
Contact Ausgrant today if you would like more information about the R&D Tax Incentive and if your company qualifies.
