Australia proposes expanded eligibility for tax incentives - more multinationals would qualify

Overview

Australia’s Federal Budget for the 2020-21 year, announced on October 6, includes significant tax incentives intended to stimulate investment and assist in economic recovery.  These include immediate deductions for certain capital expenditures. The budget proposals which were summarized in a previous Insight, were enacted in October 2020 in the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020.

A key limitation of the asset write-off incentive is that it only applies to taxpayers with less than A$5b in ‘aggregate turnover,’ a defined term which refers to the global revenue of multinational groups (on an ‘associate-inclusive’ basis.  This limit excluded many large multinational groups.

However, on November 23, the Treasurer of Australia announced that it would propose an expansion of the measure’s scope by introducing an alternative test.  Under this test taxpayer would be eligible for the incentives if:

1. has less than A$5b of Australian taxable income, and
2. invested over A$100m in tangible depreciating assets over the two years from 2016-17 to 2018-19. 

Separately, the proposed legislation also would allow taxpayers to elect the immediate asset write-off on an asset-by-asset basis.  This is intended to provide taxpayers with flexibility and could reduce disincentives for adopting the measure.

Observation: The proposed widening of this incentive’s eligibility means that many taxpayers that have been excluded from the measure due to their group’s global revenue now may be eligible for the benefit of immediate write-off for capital expenditure.  The flexibility to choose whether to utilize this measure on an asset-by-asset basis also should help taxpayers that otherwise may have been negatively impacted by immediate deductions.

The takeaway

Taxpayers may appreciate the Treasurer's announcement to introduce an alternative test for eligibility for the immediate asset write-off, and to give taxpayers the flexibility to choose whether to apply the write-off on an asset-by-asset basis. 

Multinational groups that have significant global revenue, but smaller Australian operations, may become eligible for this measure after having been excluded from the incentive based on the original eligibility criteria.

However, taxpayers should review the details of the new proposed legislation before making capital investment decisions in reliance on this incentive.