Businesses will be able to write off the full value of any assets they purchase and claw back tax already paid against losses to June 2022 in what the treasurer, Josh Frydenberg, has called the “largest set of investment incentives” ever offered.
The two measures will cost the budget $26.7bn and $4.9bn over the next four years in a bid to create 50,000 jobs and are supplemented by a further $2bn on research and development tax concessions.
The shadow treasurer, Jim Chalmers, said Labor was “inclined to support” the business tax measures but would examine the detail to “make sure that’s the right and responsible way to spend so much money”.
Earlier, in his budget speech, Frydenberg said with eight out of 10 jobs being in the private sector it was the “engine of the Australian economy” – but during the Covid-19 crisis it “needs a kickstart”.
Businesses with a turnover of less than $5bn – all but the top 1% – will be able to deduct the full cost of capital assets purchased after budget night and first used or installed by 30 June 2022. The measure expands the popular instant asset write-off, previously only available to small and medium businesses.
Small and medium businesses will also be able to apply “full expensing” to second-hand assets; businesses earning $50m to $500m will be able to do so for assets of less than $150,000.
Frydenberg said the measure was a “game-changer” that would “unlock investment” and “dramatically expand the productive capacity of the nation”.
Although “instant expensing” will cost a massive $26.7bn over four years, the government expects the true cost to shrink to $3.2bn over the medium term of 10 years.
Under current rules, companies are allowed to carry forward losses to reduce tax in future years.
Under the new provisions, the government will allow companies to carry back losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later years. This can generate a refundable tax offset that can be claimed this financial year or next.
The measure will be available to 1 million companies that employ up to 8.8 million Australians.
Frydenberg said that Covid-19 had turned “fundamentally sound businesses into loss-making businesses” and they should not have to wait to return to profitability to use those losses. “In order to keep their workers, these businesses need our help now,” the treasurer said. “They cannot wait years for the tax system to catch up.”
The measure will cost $4.9bn over four years, shrinking to $3.9bn over the medium term.
The government will also make changes to the research and development tax offset “removing the cap on refunds, lifting the rate and rewarding those businesses that invest the most”, Frydenberg said.
Budget papers explain for small companies the $4m cap on cash refunds will be abandoned and the refundable R&D tax offset rate will be increased to 18.5% above the claimant’s company tax rate.
Larger businesses with annual turnover of $20m or more will benefit from a more generous non-refundable R&D tax offset.
The cap on R&D expenditure that can be claimed will be lifted from $100m to $150m per year.
Together the three business measures cost $33.6bn over four years, almost double the cost of income tax cuts provided to households ($17.8bn).
Budget papers suggest temporary full expensing and temporary loss carry-back could support $200bn of investment, and increase GDP by $10bn in 2021-22.
The Australian Industry Group welcomed the measures, saying the investment allowance would provide a “critical boost to investment, productivity and job creation”.
“Without this measure, the anticipated fall in non-mining business investment of 14.5% in 2020-21 would be much greater and the measure is a significant factor in the anticipated rise of 7.5% in non-mining business investment in the 2021-22 year,” the chief executive, Innes Willox, said.
The loss carry-back will provide “invaluable cash flow support for many businesses”, he said.
The government will also lift the threshold for a “small business” from turnover of $10m to $50m, a move increasing eligibility for some concessions and reducing “red tape”.