The Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 was introduced into the House of Reps on Thursday 30.3.2017, to amend the tax law to:
- supplement the same business test with a more flexible similar business test to improves access to losses for companies (and certain trusts) that have changed ownership so as to allow those companies and trusts to seek out opportunities to innovate and grow without losing access to losses (starting from 1 July 2015);
- provide taxpayers with the choice to self-assess the effective life of certain intangible depreciating assets they start to hold on or after 1 July 2016, rather than using the statutory effective life currently specified in the law.
Note that these amendments follow on from the Government’s previously announced package of measures to incentivise and reward innovation as part of its “National Innovation and Science Agenda”.
SAME BUSINESS TEST: The proposed measures centre around a new s165-211 of the ITAA 1997 (see extract below), provides that, in working out whether a business carried on immediately before the test time (the former business) is similar to the business carried on in an income year during which the company wants to use the loss (the current business), it is necessary to consider the following factors, which are not exhaustive:
- the extent to which the assets (including goodwill) that are used in the current business to generate assessable income were also used in the company’s former business to generate assessable income;
- the extent to which the activities and operations from which the current business generates assessable income were also the activities and operations from which the former business generated assessable income;
- the identity of the current business and the identity of the former business; and
- the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods, of the former business.
The anti-avoidance test (in ss(3)) does not undo the work to undo the latitude intended, by adding the ‘similar’ business, as the ‘no transaction of a different kind’ rule, requires an additional ‘intention’ requirement of trying to satisfy the test (though we’ll see whether the ‘purpose or one of the purposes’ test is construed so widely as the effectively undermine the thrust of the new provision). This ss(3) provision is also extracted below.
Note, that there is also an equivalent provision added to the ‘trust loss’ carry forward provisions in Schedule 2F of the ITAA 1936. This is a new s269-105.
INTANGIBLE DEPRECIATING ASSETS: The proposed measures will allow a taxpayer to choose to self-assess the effective life of intangible depreciating assets listed in the table in s40-95(7) of the ITAA 1997 rather than using the statutory effective life specified in the table. The choice can be made in relation to intangible assets the taxpayer starts to hold on or after 1 July 2016.
The intangible assets to which this choice applies are as follows:
- a standard patent;
- an innovation patent;
- a petty patent;
- a registered design;
- a copyright (except copyright in film);
- a licence (except one relating to a copyright or in house software);
- a licence relating to a copyright (except copyright in a film);
- in-house software;
- a spectrum licence;
- a datacasting transmitter licence; and a telecommunications site access right.
The proposed measures will also allow the taxpayer to recalculate the effective life in later income years if the effective life the taxpayer has been using is no longer accurate because of changed circumstances relating to the nature of the asset’s use.
The amendments centre around changes to s40-95 of the ITAA 1997.
[APH website: Bills Digest, Bill (first reading), Explanatory Memorandum; LTN 60, 30/3/17]
Extract from Bill – Similar Business Test
165-211 The business continuity test—carrying on a similar business
(1) A company also satisfies the business continuity test in relation to:
(a) a *tax loss for an income year starting on or after 1 July 2015; or
(b) taxable income for an income year starting on or after 1 July 2015; or
(c) a *net capital loss for an income year starting on or after 1 July 2015; or
(d) a debt, incurred in an income year starting on or after 1 July 2015, that the company writes off as bad;
if throughout the *business continuity test period it carries on a business (its current business) that is similar to the *business it carried on immediately before the *test time (its former business ). [Emphasis added]
(2) Without limiting the matters that may be taken into account in ascertaining whether the company’s current business is similar to its former business, the following must be taken into account:
(a) the extent to which the assets (including goodwill) that are used in its current business to generate assessable income throughout the *business continuity test period were also used in its former business to generate assessable income;
(b) the extent to which the activities and operations from which its current business generated assessable income throughout the business continuity test period were also the activities and operations from which its former business generated assessable income;
(c) the identity of its current business and the identity of its former business;
(d) the extent to which any changes to its former business result from development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business.
(3) However, the company does not satisfy the *business continuity test under this section if, before the *test time, it:
(a) started to carry on a *business it had not previously carried on; or
(b) in the course of its business operations, entered into a transaction of a kind that it had not previously entered into;
and did so for the purpose, or for purposes including the purpose, of being taken to have carried on throughout the *business continuity test period a business that is similar to the business it carried on immediately before the test time.