Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017



Download PDFDownload PDF

ISSN 1328-8091

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest.

BILLS DIGEST NO. 39, 2017-18 9 OCTOBER 2017

Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 Jaan Murphy Law and Bills Digest Section

Contents

Purpose of the Bill ............................................................... 3

Structure of the Bill ............................................................. 3

Background ......................................................................... 3

Access to previous years’ tax losses ........................................ 3

Depreciation of intangible assets ............................................ 3

Table 1: current statutory effective life of depreciating intangible assets .................................................................... 4

National Innovation and Science Agenda ................................ 4

Consultation process ............................................................... 4

Committee consideration .................................................... 5

Senate Standing Committee for the Scrutiny of Bills .............. 5

Senate Standing Committee for the Selection of Bills ............. 5

Policy position of non-government parties/independents ..... 5

Position of major interest groups ......................................... 6

Financial implications .......................................................... 6

Statement of Compatibility with Human Rights .................... 7

Parliamentary Joint Committee on Human Rights .................. 7

Key issues and provisions: improving access to previous year tax losses ..................................................................... 7

Current law .............................................................................. 7

Same business test requirements ......................................... 7

Anti-avoidance mechanisms ................................................. 8

Other uses of the same business test ................................... 8

Summary of proposed changes ............................................... 8

Overview of the proposed ‘similar business test’ ................... 9

Date introduced: 30 March 2017

House: House of Representatives

Portfolio: Treasury

Commencement: The first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at

October 2017.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 2

Business continuity test period and test time ......................... 9

Factors taken into account when applying the proposed ‘similar business test’ .............................................................. 9

The use of assets to generate assessable income ................. 9

The extent of activities and operations used to generate assessable income ............................................... 10

The identity of the current business and former business ............................................................................... 10

Relationship of changes to development or commercialisation of previous aspects of the business ...... 11

Absence of negative limbs from the ‘similar business’ test ......................................................................................... 11

Existing integrity measures .................................................... 11

Use of company’s tax losses to avoid income tax ............... 12

Use of company’s net capital losses to avoid income tax ........................................................................................ 12

Use of company’s bad debts to avoid income tax............... 12

Proposed integrity measures................................................. 12

Retrospective commencement ............................................. 13

Key issues and provisions: depreciation of intangible assets ................................................................................ 13

Current law ............................................................................ 13

Factors to be considered when self-assessing the effective life of a depreciating asset ................................... 14

Associate and same user rules ............................................ 14

Recalculating the effective life of a depreciating asset ....... 14

Summary of proposed changes ............................................. 15

Eligible intangible assets ..................................................... 15

Self-assessment of the effective life of intangible depreciating assets by taxpayers ........................................ 15

Restrictions on timing of self-assessment ........................... 15

Application of associate and same user rules ..................... 15

Application of recalculation rules ........................................ 16

Retrospective commencement ............................................. 16

Concluding comments ....................................................... 16

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 3

Purpose of the Bill The purpose of the Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 (the Bill) is to amend the Income Tax Assessment Act 1997 (the ITAA 1997) and the Income Tax Assessment Act 1936 (the ITAA 1936) to:

• improve access to previous year tax losses for companies and listed widely held trusts by introducing a ‘similar business test’ that will allow those that have changed ownership but conduct substantially the same business after that change of ownership, to access those tax losses (which the application of the existing ‘same business test’ would prevent) and

• provide taxpayers with the choice to self-assess the effective life of certain intangible depreciating assets (such as patents, in-house software, registered designs and certain copyrights and licences) that they start to hold on or after 1 July 2016, rather than using the existing specified statutory effective life.1

Structure of the Bill The Bill is divided into two Schedules.

• Schedule 1 deals with improving access to previous year tax losses, and is divided into three Parts:

- Part 1 deals with companies - Part 2 deals with listed widely held trusts and - Part 3 deals with consequential amendments • Schedule 2 deals with the ability of tax payers to self-assess the effective life of certain intangible depreciating assets.

Background Access to previous years’ tax losses For ease of reading, in this digest the term ‘entity’ is used to refer to companies and listed widely held trusts unless a particular measure only applies to companies or listed widely held trusts.

Where a taxpayer has more deductions for an income year than assessable income and net exempt income, the result is a tax loss.2 Tax losses from previous income years can only be carried forward and deducted from assessable income in future income years by companies and listed widely held trusts in certain circumstances.

Firstly, the entity can access a previous year’s tax loss if it passes the ‘continuity of ownership test’. Alternatively, if the entity fails the continuity of ownership test (for example, if the company underwent a substantial change of ownership or control) it can only access previous years’ tax losses if it passes the ‘same business test’.3

If, however, the entity derives income from new kinds of business or transactions, the same business test is failed and the entity cannot access previous years’ tax losses.4

Depreciation of intangible assets The cost of depreciating assets (including certain intangible assets) is generally of a capital nature and hence is not immediately deductable as an ordinary business expense. However, in some circumstances deductions are available for the decline of the value of depreciating assets (including certain intangible assets) to the extent that the asset is used for a taxable purpose.5

Division 40 of the ITAA 1997 creates a uniform capital allowance system that, amongst other things, deals with deductions for the decline in the value of depreciating assets. Currently the tax law recognises a number of different types of intellectual property and other intangible assets as depreciating assets and provides special rules for their effective life.6

1. Explanatory Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017, p. 3. 2. Income Tax Assessment Act 1997 (ITAA 1997), section 36-10. 3. Ibid., section 165-5. 4. Ibid., subsection 165-210(4). 5. CCH Australia, Australian master tax guide, Wolters Kluwer, Sydney, 2017, p. 1075, para. [¶17-005]. 6. ITAA 1997, op. cit., subsections 40-30(2), 40-95(7) and 995-1(1).

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 4

Currently, the decline in value for intangible assets (and hence the amount of a deduction) is calculated by spreading the cost of the asset over its ‘effective life’, which in this case is the ‘statutory effective life’ set out in the table in subsection 40-95(7) of the ITAA 1997, and reproduced below.

Table 1: current statutory effective life of depreciating intangible assets Type of intangible asset Effective life

Standard patent 20 years

Innovation patent 8 years

Petty patent 6 years

Registered design 15 years

Copyright (other than film copyright) The shorter of:

(a) 25 years from acquisition of copyright; and

(b) the period until the copyright ends

A licence (not relating to a copyright or in-house software) The term of the licence

A licence relating to copyright (except copyright in a film) The shorter of: (a) 25 years from when the taxpayer became licensee; and

(b) the period until the licence ends

In-house software 5 years if first used, or installed ready for use, from

1 July 2015; otherwise 4 years

Spectrum licence The term of the licence

Datacasting transmitter licence 15 years

Telecommunications site access right The term of the right

Source: ITAA 1997, subsection 40-95(7); CCH Australia, Australian master tax guide, Wolters Kluwer, Sydney, 2017, pp. 1075-1109, paras [¶17-005] and [¶17-370] in particular.

National Innovation and Science Agenda On 7 December 2015, the Government announced a package of measures designed to incentivise and reward innovation as part of its National Innovation and Science Agenda (the Agenda). Relevantly to the Bill, the Agenda stated ‘we will provide new tax breaks to remove the bias against businesses that take risks and innovate’.7 The Agenda stated that as part of an overall initiative of ‘aligning our tax system and business laws with a culture of entrepreneurship and innovation’ the Government intended to:

• relax the ‘same business test’ that denies tax losses if a company changes its business activities and introduce a more flexible ‘predominantly similar business test’ on the basis it would ‘allow a startup to bring in an equity partner and secure new business opportunities without worrying about tax penalties’ and

• remove rules that limit depreciation deductions for some intangible assets (like patents) to a statutory life and instead allow them to be depreciated over their economic life as occurs for other assets.8

Consultation process Treasury released an exposure draft of the Bill (as it relates to depreciating intangible assets) in April 2016 for consultation.9 Five submissions were received, of which four were generally supportive of (whilst raising specific

7. Department of Industry, Innovation and Science (DIIS), National innovation and science agenda: welcome to the ideas boom, DIIS, Canberra, December 2015, p. 4. 8. Ibid., p. 7.

9. The Treasury, ‘National innovation and science agenda: intangible asset depreciation’, Treasury website, 1 April 2016.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 5

issues around the drafting of) the measure.10 One submission was critical of the proposal to allow depreciation of non-innovative intangible assets, such as telecommunications site access rights, datacasting transmitter licences and spectrum licences.11

Treasury also released an exposure draft of the Bill (as it relates to increasing access to company losses) in April 2016 for consultation.12 Ten submissions were received, most of which whilst supportive of the policy intent, provided constructive criticism regarding the drafting of the measures, which resulted in the proposed legislation being revised.13

Committee consideration Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.14

Senate Standing Committee for the Selection of Bills The Senate Standing Committee for the Selection of Bills recommended that the Bill not be referred to a committee for inquiry and report.15

Policy position of non-government parties/independents The position of the Opposition in relation to the Bill is as follows:

• it will support Schedule 1 of the Bill (which deals with improving access to previous year tax losses)

• it will oppose Schedule 2 of the Bill (which deals with the ability of tax payers to self-assess the effective life of certain intangible depreciating assets).16

In outlining why the Opposition would not support Schedule 2 of the Bill, the Shadow Assistant Treasurer stated:

Schedule 2—which, as I have said, Labor will not be supporting—gives taxpayers the choice to self-assess the effective life of certain intangible depreciating assets rather than using the statutory effective life, in working out decline in value. The effective life of an asset is used to calculate the decline in value of the intangible asset, and this Bill applies to assets such as patents, copyrights and licences, and only applies to assets the taxpayer starts to hold on or after 1 July 2016. The argument that has been made for this in submissions to the Re:think tax discussion paper is the way in which such intangible assets are depreciated in Britain and the United States. But Labor does not feel that a sufficiently strong policy case has been made for the measures in schedule 2. Were the government to split the bill, Labor would be pleased to support what is currently schedule 1, but we cannot support schedule 2.

17 (Emphasis added.)

The above is consistent with the Opposition’s previous criticism of the proposed changes to the tax deduction and depreciation arrangements for intangible assets in late 2015:

Currently, these assets must be claimed as tax deductions according to a timetable set by the Australian Tax Office— meaning their value can only be claimed back over either 8 or 20 years. The Government now wants to let

10. The Treasury, ‘National Innovation and Science Agenda: intangible asset depreciation: submissions’, Treasury website, 2016; PricewaterhouseCoopers (PwC), Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 22 April 2016; Telstra, Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 21 April 2016; The Franksons Group, Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 21 April 2016; and The Tax Institute, Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 20 April 2016.

11. K Mansell, Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 1 April 2016. 12. The Treasury, ‘National Innovation and Science Agenda: increasing access to company losses’, Treasury website, 6 April 2016. 13. The Treasury, ‘NISA: increasing access to company losses: submissions’, Treasury website, 6 April 2016 (see, for example, The Tax Institute,

Submission to the Treasury, Consultation into the National Innovation and Science Agenda: increasing access to company losses, 21 April 2016, p. 1). 14. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, 2017, The Senate, 10 May 2017, p. 58. 15. Senate Selection of Bills Committee, Report, 5, 2017, The Senate, 11 May 2017, p. 3. 16. A Leigh (Shadow Assistant Treasurer), ‘Second reading speech: Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017’, House of Representatives, Debates, 21 June 2017, p. 7294. 17. Ibid., pp. 7294-7295.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 6

companies choose their own depreciation schedules instead. This means they may claim tax breaks over a much shorter period and dramatically boost their profits in the process … Any company doing business here which acquires intangible assets will be able to write them off this way—including the world’s biggest technology firms and other corporate behemoths.

As the Senate’s corporate tax inquiry has heard, shifting money around from one arm of a company to another under the guise of paying for intangible assets is already a standard trick in the tax avoidance toolkit. Adding another tax incentive into this mix will likely lead to even more money draining away offshore. 18

The position of other non-government parties and independents in relation to the specific measures in the Bill was not clear at the time of writing.

Position of major interest groups Most major interest groups were generally supportive of the policy intent of the measures contained in the Bill.

As noted above, four of five submissions received by Treasury during the exposure draft consultation phase were supportive of the reforms in Schedule 2 to the Bill (which deals with the ability of tax payers to self-assess the effective life of certain intangible depreciating assets). However, these submissions originated from professional organisations and businesses that are likely to be significant beneficiaries of the reforms. The only submission that was received that was not from a potential beneficiary was critical of the reforms, and whether they would achieve the stated aim. Outside of formal submissions, other stakeholders expressed support for the changes proposed in relation to the tax deduction and depreciation arrangements for intangible assets with accounting firm Deloitte stating:

Innovative companies growing in today’s economy are far more likely than other traditional companies to have intangible or knowledge-based assets—including patents, trademarks, copyrights and business models.

Since the Government recognises that investment in these assets is crucial to innovation and growth, changes will be introduced to allow faster tax depreciation where appropriate, providing more immediate tax benefits. A new option to self-assess the tax effective life of intangible assets will align the tax treatment of intangible assets with other types of assets and assist innovative companies in exploiting their intellectual property and other intangible assets.

19

In the consultation conducted by Treasury in relation to Schedule 1 of the Bill (which deals with improving access to previous year tax losses) 10 submissions were received, the majority of which were supportive of the underlying policy of the Bill as drafted.20 KPMG noted that whilst ‘relaxing the loss recoupment rule is a welcoming change to encourage not only start-up businesses but also business generally to innovate and grow’, given that ‘it is a question of degree and fact as to how similar is “similar”’ it was likely that ‘further ATO guidance and revisiting existing tax rulings on the same business test may be needed’.21

Financial implications In relation to improving access to previous years’ tax losses, the Explanatory Memorandum states that the reforms proposed by the Bill ‘will have an unquantifiable financial impact’.22 Increasing access to previous years’ tax losses would undoubtedly reduce revenue, as it would increase the use of such tax losses to off-set taxable profits. However, the fact that the Explanatory Memorandum does not quantify the financial impact of increasing access to previous years’ tax losses may suggest that some difficulty in modelling the behaviour of businesses (including those with previous years’ tax losses) in response to the reforms, and hence accurately quantifying the financial cost to the Commonwealth over the forward estimates.

18. A Leigh (Shadow Assistant Treasurer and Minister for Competition), Malcolm Turnbull's idea of helping startups: give tax breaks to world's biggest firms, media release, 10 December 2015. 19. Deloitte, Tax insights: creating Australia’s future innovation landscape?, Deloitte Australia, Melbourne, 9 December 2015, p. 4. 20. The Treasury, ‘NISA: increasing access to company losses: submissions’, Treasury website, 6 April 2016. 21. J Wong, ‘New similar business test for losses’, KPMG website, 12 April 2017. See also: KPMG, Submission to the Treasury, Consultation into

the National Innovation and Science Agenda: increasing access to company losses, 22 April 2016, pp. 1-2.). 22. Explanatory Memorandum, op. cit., p. 3.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 7

In relation to the financial impact of the proposal to allow tax payers to self-assess the effective life of certain intangible depreciating assets, the Explanatory Memorandum states that the reforms will cost $80 million in the period to 30 June 2019.23

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible, as it ‘does not engage any of the applicable rights or freedoms’.24

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.25

Key issues and provisions: improving access to previous year tax losses Current law As noted above, where a taxpayer has more deductions than assessable income and net exempt income, the result is a tax loss.26 Tax losses from previous income years can only be carried forward and deducted from assessable income in future income years by companies and listed widely held trusts in certain circumstances (a listed widely held trust is a widely held unit trust whose units are listed on an approved stock exchange).27

The first option for accessing previous years’ tax losses is for the entity to pass the ‘continuity of ownership test’. If the entity fails the continuity of ownership test (for example, if the company underwent a substantial change of ownership or control) it can only access previous years’ tax losses if it passes the ‘same business test’.28

In general terms, and subject to some qualifications in the case of listed public companies, the existing same business test requires that there be a level of sameness between:

• the company’s business activities before the time of the change of ownership or control (the ‘test time’) and

• the company’s business activities after the test time and during the income year for which the deduction is claimed (the ‘same business test period’).

Same business test requirements Currently, to satisfy the same business test the entity must satisfy all of the following requirements:

• throughout the same business test period, the entity carried on the same business as it did immediately before the test time29

• the entity did not, at any time during the same business test period, derive assessable income from a business of a kind which it did not carry on before the test time30 and

• the entity did not, at any time during the same business test period, derive assessable income from a transaction of a kind that it had not entered into in the course of its business operations before the test time.31

23. Ibid., p. 4. 24. The Statement of Compatibility with Human Rights can be found at pages 25 and 34 of the Explanatory Memorandum to the Bill. 25. Parliamentary Joint Committee on Human Rights, Scrutiny report, 4, 2017, The Senate, Canberra, 9 May 2017, p. 74. 26. ITAA 1997, section 36-10. 27. Income Tax Assessment Act 1936 (ITAA 1936), section 272-115 of Schedule 2F. Currently, there are various restrictions on a listed widely held

trust accessing tax losses and claiming debt deductions contained in subdivision 266-D of Schedule 2F to the ITAA 1936. See, for example, ITAA 1936, Schedule 2F, section 266-110. 28. Explanatory Memorandum, pp. 5-6. 29. In relation to listed widely held trusts: ITAA 1936, Schedule 2F, subsection 269-100(1); in relation to companies see: ITAA 1997, subsection 165-210(1). 30. In relation to listed widely held trusts: ITAA 1936, Schedule 2F, paragraph 269-100(3)(a); in relation to companies see: ITAA 1997, para. 165-210(2)(a). 31. In relation to listed widely held trusts: ITAA 1936, Schedule 2F, paragraph 269-100(3)(b); in relation to companies see: ITAA 1997, para. 165-210(2)(b).

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 8

This means that (subject to the anti-avoidance mechanisms discussed below) an entity will satisfy the same business test if it carries on the same business in the income year when it wants to use a tax loss as it carried on immediately before the change of ownership or control that caused the company to fail the continuity of ownership test.32

Anti-avoidance mechanisms In addition to the above, the entity must not have commenced certain business activities before the test time for the purpose of satisfying the same business requirement. This is an anti-avoidance measure designed to counter arrangements that are aimed at exploiting the same business test, such as where an entity changes the nature of its business before a change of ownership, so that the business is the same as the business which it intends to carry on after the change of ownership for the purpose of being able to access existing previous year tax losses. In such situations the anti-avoidance provisions provides that the same business test will not be satisfied.33 In addition, if the entity incurs expenditure in carrying on a business that it did not carry on before the test time, or as a result of a transaction of a kind that it did not enter into before the test time, it will also fail the same business test.34

It flows from the above that if an entity derives income from new kinds of business or transactions, or incurs expenditure on new kinds of business or transactions, the same business test is failed and the entity cannot access previous years’ tax losses.

Other uses of the same business test The same business test not only determines whether tax losses from previous income years can be used by an entity35, it is also used for determining:

• whether a company can use a net capital loss from a previous year against current year capital gains36

• whether a company can use losses to offset capital gains arising from capital gains tax (CGT) events that happen to CGT assets that it acquired prior to a change of ownership or control37

• whether an entity can deduct a debt written off as bad in an income year, where the debt was initially incurred prior to a change of ownership or control38

• whether special rules about how to calculate an entity’s taxable income and tax loss, and net capital gains and losses, apply to an entity for an income year during which it has undergone a change of ownership or control39 and

• whether a company joining a consolidated group can transfer its losses to the head company of the consolidated group.40

The proposed ‘similar business test’ will also apply for these purposes and will therefore impact on a range of other taxation issues beyond accessing previous years’ tax losses.

Summary of proposed changes The Bill will supplement (rather than replace) the ‘same business test’ with a more flexible ‘similar business test’, which will be used to determine if an entity’s tax losses and net capital losses from previous income years can be used, as well as whether a debt written off as bad can be deducted in an income year.41

32. Explanatory Memorandum, p. 6. 33. In relation to companies see: subsection 165-210(3) of the ITAA 1997. In relation to listed widely held trusts see: ITAA 1936, Schedule 2F, subsection 269-100(4). 34. In relation to companies see: subsection 165-210(4) of the ITAA 1997. In relation to listed widely held trusts see: ITAA 1936, Schedule 2F,

subsection 269-100(5). 35. In relation to companies see: see sections 165-12 and 165-13 of the ITAA 1997. In relation to listed widely held trusts see: ITAA 1936, subdivision 266-D of Schedule 2F. 36. See: subdivision 165-CA of the ITAA 1997. 37. See: subdivision 165-CC of the ITAA 1997. 38. In relation to companies see: Subdivision 165-C of the ITAA 1997. In relation to listed widely held trusts see: ITAA 1936, Subdivision 266-D in

Schedule 2F. 39. In relation to companies see: see Subdivisions 165-B and 165-CB of the ITAA 1997. In relation to listed widely held trusts see: ITAA 1936, Division 268 of Schedule 2F. 40. See: subdivision 707-A of the ITAA 1997.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 9

Overview of the proposed ‘similar business test’ The ‘similar business test’ is modelled off the existing ‘same business test’ in that it involves determining whether the 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 entity wants to use a tax loss (the current business). Unlike the ‘same business test’, the proposed ‘similar business test’ in some circumstances allows access to tax losses by an entity that has entered into new business or transactions, provided the current business is similar to the former business.

Importantly, however, as with the existing same business test, whether the current business is similar to the previous business is a question of fact determined by considering a number of factors. These are discussed below.

Generally, however, an entity will satisfy the similar business test if the business it carries on throughout the income year when it wants to use a tax loss to reduce assessable income (the ‘business continuity test period’) is similar to the business it carried on at the time immediately before the change of ownership or control that caused the entity to fail the continuity of ownership test (the ‘test time’).

Business continuity test period and test time To satisfy the similar business test, the entity must carry on its current business throughout the ‘business continuity test period’ (the period in which the entity seeks to access (or ‘recoup’) previous years’ tax losses).42 That business must be similar to the business carried on immediately before the ‘test time’ (the time of the change of ownership or control, which triggered the requirement that the similar business test be passed in order for the entity to access previous years’ tax losses).43

Factors taken into account when applying the proposed ‘similar business test’ In order for an entity to pass the similar business test, the (non-exhaustive) list of factors set out in proposed subsection 165-211(2) of the ITAA 1997, at item 8 of Schedule 1 to the Bill (for companies) and 269-105(3) of Schedule 2F to the ITAA 1936, at item 21 of Schedule 1 to the Bill (for listed widely held trusts) must be considered in order to determine whether the entity’s current business is similar to its former business.44 The focus of the similar business test is on the ‘identity’ of the business. The Explanatory Memorandum notes:

It is not sufficient for the current business to be of a similar ‘kind’ or ‘type’ to the former business. For example, it is not enough to say that the former business was in the hospitality industry and the current business is in the hospitality industry. Instead, the test looks at all of the commercial operations and activities of the former business and compares them with all the commercial operations and activities of the current business to work out if the businesses are similar.

45

The factors considered when applying the similar business test are discussed below. However, as noted in the Explanatory Memorandum, the factors must be ‘considered in light of the overarching question of whether the current business is a similar business to the former business’ and hence in cases ‘a factor may suggest that the similar business test is satisfied’ while another factor may suggest that it is not and hence ‘the relative importance of each of the factors depends on the facts and circumstances of each particular case’.46

The use of assets to generate assessable income The first factor considered in applying the proposed similar business test is:

41. Explanatory Memorandum, op. cit., p. 9. 42. The ‘business continuity test period’ used in the Bill is equivalent to the ‘same business test period’ in the current law: Explanatory Memorandum, op. cit., p. 19. 43. Proposed subsection 165-211(1) of the ITAA 1997 (in relation to companies) (item 8 of Schedule 1 to the Bill); proposed

subsection 269-105(1) of Schedule 2F to the ITAA 1936 (in relation to listed widely held trusts)(item 21 of Schedule 1 to the Bill). 44. Explanatory Memorandum, op. cit., p. 8. 45. Ibid., p. 10. 46. Ibid., p. 11.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 10

… the extent to which the assets (including goodwill) that are used in [the entity’s] current business to generate assessable income throughout the business continuity test period were also used in its former business to generate assessable income. 47

This factor involves determining the extent to which the assets (including goodwill) used in the former business to generate assessable income are used in the current business to generate assessable income. In the context of the Bill, ‘assets’ includes both physical and intangible assets such as goodwill, patents, trademarks or other intellectual property rights of the entity.48

As noted in the Explanatory Memorandum, goodwill will often be an important aspect of this factor, as it is:

… the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to the business. The attraction of custom is central to the legal concept of goodwill. Goodwill is a quality or attribute that derives from, among other things, using or applying other assets of a business. It may derive from a site, personality, service, price or habit that obtains custom …

49

The extent of activities and operations used to generate assessable income The second factor considered in applying the proposed similar business test is:

… the extent to which the activities and operations from which [the entity’s] 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. 50

This factor involves determining the extent to which the activities and operations that generated assessable income in the former business also generate assessable income in the current business. The Explanatory Memorandum provides the following example:

… if a company ran an Italian restaurant and then opened up a takeaway fish and chips shop, the takeaway fish and chips shop would amount to a new activity or operation that produced the company’s assessable income. 51

The identity of the current business and former business The third factor considered in applying the proposed similar business test is ‘the identity of [the entity’s] current business and the identity of its former business’.52

This factor involves a comparison between the ‘identity’ of the former business and the current business. The Explanatory Memorandum notes:

The comparison will show which characteristics of the former business have been retained and which characteristics have changed or disappeared. In addition, the comparison will show which characteristics of the current business are derived from those of the previous business and which characteristics are new additions. 53

Determining the identity of the former and current business will involve a broad-ranging enquiry, not limited to ‘matters of mere branding and public recognition’.54 Instead, what will be required is an analysis of ‘the cumulative effect of all changes that are reflected in the identity of the current business compared to the identity of the former business’.55 The Explanatory Memorandum notes:

The relative importance of particular business characteristics (for example products and services offered, type of activities performed and identity of suppliers and consumers) will depend on the nature of the previous business

47. Proposed paragraph 165-211(2)(a) of the ITAA 1997; proposed paragraph 269-105(3)(a) of Schedule 2F to the ITAA 1936. 48. Explanatory Memorandum, op. cit., p. 11. 49. Ibid., p. 11. 50. Proposed paragraph 165-211(2)(b) of the ITAA 1997; proposed paragraph 269-105(3)(b) of Schedule 2F to the ITAA 1936. 51. Explanatory Memorandum, op. cit., p. 12. 52. Proposed paragraph 165-211(2)(c) of the ITAA 1997; proposed paragraph 269-105(3)(c) in Schedule 2F to the ITAA 1936. 53. Explanatory Memorandum, op. cit., p. 12. 54. Ibid.

55. Ibid.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 11

and current business in each case. In particular, a comparison between the core functions of the current business and those of the former business is of most significance. 56

This would suggests that in situations where the ‘core’ functions of a business change, it may be more difficult for the entity to satisfy the ‘similar business’ test and therefore access previous years’ tax losses compared to situations where the ‘new’ aspects of the business do not represent an alteration to the ‘core’ functions of the business.

Relationship of changes to development or commercialisation of previous aspects of the business The fourth factor considered in applying the proposed similar business test is:

… the extent to which any changes to [the entity’s] former business result from development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business. 57

This factor focuses on the degree of continuity and connection between the current business and the former business as a result of the development or commercialisation of assets, products, processes, services, marketing or organisational methods of the former business. The Explanatory Memorandum notes:

It is not sufficient that the change is a reasonable business decision in that it makes commercial sense, or is a good business opportunity. Rather, there must be something in the activities or operations of the former business that make the change a natural organic development of the former business. 58

This would suggest, for example, that a residential property developer applying its market research process and marketing methods to commercial property development may be a ‘natural organic development of the former business’ (being residential property development and sales) but applying its market research process and marketing methods to residential mortgage sales may not be a ‘natural organic development of the former business’ (even though it may be a good business opportunity with synergy with the former business).

Absence of negative limbs from the ‘similar business’ test The proposed similar business test does not incorporate the negative limbs of the same business test, which provides that an entity does not meet the test if it derives assessable income from:

• a business of a kind which it did not carry on before the test time or

• a transaction of a kind that it had not entered into in the course of its business operations before the test time.59

This means that an entity is able to derive assessable income from new business activities and to enter into new transactions without automatically failing the business continuity test, and therefore the similar business test. However, deriving assessable income from new kinds of business or transactions will still be ‘relevant when considering whether the similar business test is satisfied’.60

Existing integrity measures Currently Division 175 of the ITAA 1997 contains integrity rules for tax losses, net capital gains and bad debts that prevent tax avoidance or income injection schemes that seek to use a company’s tax losses or deductions. To give context to the amendments, these are briefly outlined below.

In relation to listed widely held trusts, the Bill makes no amendments to the existing applicable integrity rules in Division 270 of Schedule 2F of the ITAA 1936, as it appears that (due to differences in drafting) those existing integrity measures will continue to apply and prevent tax avoidance or income injection schemes that seek to use a listed widely held trust’s tax losses or deductions, despite the introduction of the similar business test.

56. Ibid.

57. Proposed paragraph 165-211(2)(d) of the ITAA 1997; proposed paragraph 269-105(3)(d) in Schedule 2F to the ITAA 1936. 58. Explanatory Memorandum, op. cit., p. 13. 59. ITAA 1997, subsection 165-210(2). 60. Explanatory Memorandum, op. cit., p. 13.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 12

Use of company’s tax losses to avoid income tax Subdivision 175-A of the ITAA 1997 contains two integrity rules that prevent income injection schemes by allowing the Commissioner of Taxation to disallow a tax loss:

• if an amount is injected into a company that would not have been injected if the loss had not been available61 or

• if a person obtains a tax benefit in connection with a scheme, and the scheme would not have been entered into or carried out if the loss had not been available.62

Use of company’s net capital losses to avoid income tax Subdivision 175-CA of the ITAA 1997 contains two integrity rules that prevent income injection schemes by allowing the Commissioner of Taxation to disallow net capital losses from earlier income years where:

• the company made a capital gain some or all of which (the injected capital gain) it would not have made if the net capital loss from an earlier year had not been available to be applied in working out the company’s net capital gain for the income year (or for some other income year)63 or

• a person has obtained or will obtain a tax benefit in connection with a scheme and the scheme would not have been entered into or carried out if the net capital loss from an earlier year had not been available to be applied in working out the company’s net capital gain for the income year (or for some other income year).64

Use of company’s bad debts to avoid income tax Subdivision 175-C of the ITAA 1997 contains two integrity rules that prevent income injection schemes by allowing the Commissioner of Taxation to disallow a deduction for a bad debt:

• if the company would not have had some or all (the injected amount) of its assessable income or capital gains for the income year if:

- the debt had not been incurred and - the debt (or the relevant part of the debt) had not been written off (or able to be written off) as bad65 or • a person has obtained or will obtain a tax benefit in connection with a scheme and the scheme would not have been entered into or carried out if the debt had not been incurred and the debt (or the relevant part of

the debt) had not been written off (or able to be written off) as bad.66

Proposed integrity measures As the similar business test is designed to allow entities to enter into new kinds of business and transactions without losing access to tax losses, it does not contain the two negative limbs used in the same business test. However, to prevent contrived arrangements aimed at ensuring access to previous years’ tax losses, the Bill contains an integrity measure modelled on existing subsection 165-210(3) of the ITAA 1997.

Proposed subsection 165-211(3) of the ITAA 1997 (in relation to companies) and proposed subsection 269-105(4) of Schedule 2F of the ITAA 1936 (in relation to listed widely held trusts) provide that an entity does not meet the similar business test where before the test time (the time of the change of ownership or control) it:

• started to carry on a new business or entered into new transactions 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.

61. ITAA 1997, section 175-10. 62. Ibid., section 175-15. 63. Ibid., subsection 175-45(1). 64. Ibid., section 175-50. 65. Ibid., section 175-85. 66. Ibid., section 175-90.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 13

In other words, the similar business test is not satisfied where contrived arrangements (such as making changes to a business prior to and in contemplation of a change in ownership or control) are entered into in order to satisfy the similar business test for the purpose of being able to access the entity’s previous years’ tax losses.

The current integrity measures (discussed above) contained in Division 175 of the ITAA 1997 do not apply where the same business test is satisfied (because the operation of the two negative limbs of the same business test target the relevant integrity concerns). This means that amendments are necessary to ensure that Division 175 does not apply where the new business continuity test is satisfied because the relevant company satisfies the same business test in proposed section 165-211 of the ITAA 1997 (which as noted above, includes the integrity measure aimed at preventing contrived arrangements aimed at ensuring access to previous years’ tax losses).

Items 9 to 11 of Schedule 1 of the Bill ensure that Division 175 will continue to apply where the company satisfies the business continuity test because of the application of the similar business test, thereby ensuring that the omission of the negative limbs from the similar business test does not create tax avoidance or income injection opportunities that would minimise a company’s tax liability.67

As noted above, similar amendments in relation to listed widely held trusts are not necessary as the existing applicable integrity rules in Division 270 of the ITAA 1936 will continue to apply and prevent tax avoidance schemes that seek to use a listed widely held trust’s tax losses or deductions, despite the introduction of the similar business test.

Retrospective commencement The amendments in Schedule 1 of the Bill apply in relation to income years starting on or after 1 July 2015.68 This means that, generally speaking, the similar business test applies for income years beginning on or after 1 July 2015 in relation to:

• tax losses incurred by entities for income years (loss years) beginning on or after 1 July 2015—the entity may choose to apply the same business test or the similar business test69

• debts incurred in income years beginning on or after 1 July 2015 that the entity writes off as bad70

• a company’s taxable income and tax loss in an income year beginning on or after 1 July 201571

• a listed widely held trust’s net income for an income year beginning on or after 1 July 201572

• a company’s net capital gain or loss, in an income year beginning on or after 1 July 201573 and

• a debt, incurred by a listed widely held trust in an income year starting on or after 1 July 2015, in relation to which a debt/equity swap occurs.74

Key issues and provisions: depreciation of intangible assets As noted in the background above (under the heading ‘Depreciation of intangible assets’), in some circumstances deductions are available for the decline of the value of depreciating assets (including certain intangible assets) to the extent that the asset is used for a taxable purpose.

Current law Currently the tax law recognises a number of different types of intellectual property and other intangible assets as depreciating assets and provides special rules for their effective life.75

67. Explanatory Memorandum, op. cit., p. 20. 68. Schedule 1, items 13 and 22. 69. Proposed paragraph 165-211(1)(a) of the ITAA 1997 (in relation to companies); proposed paragraph 269-105(1)(a) of Schedule 2F to the ITAA 1936 (in relation to listed widely held trusts).

70. Proposed paragraph 165-211(1)(d) of the ITAA 1997 (in relation to companies); proposed paragraph 269-105(1)(c) of Schedule 2F to the ITAA 1936 (in relation to listed widely held trusts). 71. Proposed paragraph 165-211(1)(b) of the ITAA 1997. 72. Proposed paragraph 269-105(1)(b) of Schedule 2F to the ITAA 1936. 73. Proposed paragraph 165-211(1)(c) of the ITAA 1997. 74. Proposed paragraph 269-105(1)(d) of Schedule 2F to the ITAA 1936. 75. ITAA 1997, subsections 40-30(2), 40-95(7), 995-1(1).

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 14

As noted in the Explanatory Memorandum, the law currently mandates the effective life to be used for certain intangible depreciating assets in calculating their decline in value (the ‘statutory effective life’, set out above in Table 1: current statutory effective life of depreciating intangible assets). The Government argues that the standardised deduction allowed for depreciation of such assets ‘may not necessarily reflect the period of time that the assets provide economic benefits to the taxpayer’.76

Factors to be considered when self-assessing the effective life of a depreciating asset Currently section 40-105 of the ITAA 1997 provides that when a taxpayer elects to self-assess the effective life of a depreciating asset, they must work out the effective life in accordance with that section, which includes taking into account:

• how they expect to use the asset (whilst assuming that the asset will be maintained in reasonably good order and condition)

• the estimated period of time that the asset can be used by any entity to derive income at its start time (for a taxable purpose, for producing exempt income or non-assessable non-exempt income, or for the purpose of conducting research and development activities)

• the likelihood of the asset becoming obsolete and

• the estimated time when the asset will be sold for ‘no more than scrap value’ or abandoned.

As a result, usually a depreciating asset will start to decline in value from its ‘start time’ (generally when the taxpayer first uses the asset or has it installed and ready for use) until the end of its effective life.

Associate and same user rules Currently section 40-95 of the ITAA 1997 contains the associate and same user rules. In short, these are rules for calculating the effective life of a depreciating asset where:

• it was acquired from an associate (for example, a related company) or

• where the holder of the asset changes but the asset continues to be used by the same former user (or an associate of the former user).

In simple terms, where a depreciating asset is acquired from an associate, the new holder is required to use the effective life determined by the former holder. This means the new holder of the asset does not have the choice to self-assess the effective life of the asset—they must use an effective life equal to the effective life of the former holder that is yet to elapse at the time the new holder starts to hold the depreciating asset.77

Recalculating the effective life of a depreciating asset Currently section 40-110 of the ITAA 1997 contains rules for recalculating the effective life of a depreciating asset. In effect, it allows taxpayers to recalculate the effective life of a depreciating asset from a later income year if the effective life being used is no longer accurate because of changed circumstances relating to the nature of the use of the asset. Some examples include:

• the use of the asset turns out to be more or less rigorous than expected

• there is a downturn in demand for the goods or services the asset is used to produce that result in the asset being scrapped

• legislation prevents the asset’s continued use or

• changes in technology make the asset redundant.78

A taxpayer must recalculate the effective life of a depreciating asset where the cost of the asset increases by 10 per cent or more in a later income year (including if the asset was acquired from an associate and the cost increases by 10 per cent or more in a later income year).79

76. Explanatory Memorandum, op. cit., p. 27. 77. See in particular subsections 40-95(4) and (5) of the ITAA 1997. 78. ITAA 1997, example to subsection 40-110(1). 79. Ibid., subsections 40-110(2) and (3).

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 15

Importantly, currently subsection 40-110(5) of the ITAA 1997 provides that the recalculation provisions do not apply to intangible deprecating assets listed in the table in subsection 40-95(7) (which are subject to the statutory effective life).

Summary of proposed changes The amendments will allow taxpayers to choose to self-assess the effective life of intangible depreciating assets that they start to hold on or after 1 July 2016 listed in the table in subsection 40-95(7) of the ITAA 1997, rather than using the specified statutory effective life.

Eligible intangible assets Taxpayers will be able to self-assess the effective life of the following intangible depreciating assets currently included in the table to subsection 40-95(7) of the ITAA 1997:

• a standard, innovation or petty patent

• a registered design

• a copyright (except in film) or a licence relating to a copyright (except in a film)

• a licence (except one relating to a copyright or in-house software)

• in-house software

• a spectrum or datacasting transmitter licence and

• a telecommunications site access right.80

Self-assessment of the effective life of intangible depreciating assets by taxpayers Proposed subsection 40-95(7) and paragraph 40-105(4)(a) of the ITAA 1997 (at items 8 and 10 of Schedule 2 to the Bill) have the effect of allowing tax payers to self-assess the effective life of any intangible depreciating assets that the taxpayer starts to hold on or after 1 July 2016, or to use the specified statutory effective life in the table to subsection 40-95(7) of the ITAA 1997. Intangible depreciating assets held by the taxpayer before 1 July 2016 will still be subject to the specified statutory effective life.

The effective life is then used in calculating the decline in value of the intangible depreciating asset under section 40-105 of the ITAA 1997 (discussed above).

Restrictions on timing of self-assessment Proposed subsection 40-95(7A) of the ITAA 1997 (at item 9 of Schedule 2 to the Bill) provides that where a taxpayer chooses to self-assess the effective life of an intangible depreciating asset, the choice must be made for the income year in which the asset’s ‘start time’ occurs (generally when the taxpayer first uses the asset or has it installed and ready for use).

The choice must be made by the day the taxpayer lodges their income tax return for the income year, unless a later time is allowed by the Commissioner of Taxation.81

Application of associate and same user rules Proposed subsection 40-95(7B) of the ITAA 1997 (at item 9 of Schedule 2 to the Bill) provides that the existing associate and same user rules (discussed above) will apply to the intangible depreciating assets listed in the table in subsection 40-95(7). This means that the new holder of an intangible depreciating asset acquired from an associate, or that continues to be used by the former user will not have the choice to self-assess the effective life of the asset or use the statutory effective life in the table in subsection 40-95(7) of the ITAA 1997.

However, subsection 40-95(6) as amended by item 6 and proposed subsection 40-95(6A), at item 7, provide that where the holder of the asset changes but the asset continues to be used by the same former user (or an associate of the former user) and:

• the new holder does not know and cannot readily find out which effective life the former holder was using or

80. ITAA 1997, subsection 40-95(7). 81. ITAA 1997, section 40-130.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 16

• the former holder did not use an effective life, then

the new holder of the intangible depreciating asset must use the statutory effective life in the table in subsection 40-95(7) of the ITAA 1997.

Application of recalculation rules Proposed subsection 40-110(5), at item 13, repeals and replaces current subsection 40-110(5) of the ITAA 1997 (which provides that the recalculation provisions do not apply to intangible deprecating assets listed in the table in subsection 40-95(7)). As a result of the amendment, the effective life of an intangible depreciating asset can be recalculated by the taxpayer where there are changes, in a later income year, to the circumstances relating to the use of an intangible depreciating asset that the taxpayer started to hold on or after 1 July 2016 provided those changes make the previously calculated effective life inaccurate.

The effect of paragraph 40-110(2)(a)(iii) as amended by item 11, proposed paragraph 40-110(2)(a)(iv) at item 12 and subsection 40-110(5) is that a taxpayer must recalculate the effective life of an intangible depreciating asset where it increases by at least 10 per cent in a later income year or where the taxpayer starts to hold an intangible depreciating asset and:

• the taxpayer is using an effective life because of the associate or same user rule in subsections 40-95(4) or (5) and

• the intangible depreciating asset’s cost increases after the taxpayer starts to hold it in that income year by at least 10 per cent.

Any such recalculations must be done under section 40-105 of the ITAA 1997, using self-assessment.82

Retrospective commencement The amendments in Schedule 2 of the Bill apply in relation to intangible depreciating assets that a taxpayer started to hold on or after 1 July 2016.

Concluding comments As tax losses can be used to reduce assessable income, they can reduce the amount of tax an entity pays in a particular income year in which it made a taxable profit. As such one effect of the proposed amendments would be to reduce the taxable income of entities; at least in the years immediately after they commence entering into new (but similar) kinds of business and transactions.

However, whilst increasing access to previous years’ tax losses may result in short-term reductions in revenue collected from entities expanding into new (but similar) kinds of business, the reforms may also incentivise entities with tax losses to innovate and expand their business and ultimately (in the long-term) become profitable. This would in turn increase tax revenues.

In relation to allowing taxpayers to self-assess the effective life of intangible depreciating assets that they start to hold on or after 1 July 2016, whilst this may allow entities to increase the tax deductions flowing from the depreciation of certain intangible assets in a way that is most beneficial to the entity (and therefore reduce tax revenue), it may also encourage innovation, increasing further investment in research and development and therefore the generation of further income-producing intangible depreciating assets (such as patents), resulting in increased profitability and tax revenue.

However, some concerns have been expressed regarding whether certain intangible assets (such as telecommunications site accesses rights, datacasting transmitter licences and spectrum licences) could actually be viewed as being sufficiently connected to innovation in the same way as other types of intangible assets such as patents.83

82. Explanatory Memorandum, op. cit., pp. 30, 32. 83. K Mansell, Submission to the Treasury, Consultation into the National Innovation and Science Agenda: intangible asset depreciation, 1 April 2016.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 17

Further, concerns have been expressed that allowing companies to choose their own depreciation schedules for intangible assets may heighten the tax avoidance risk associated with intangible assets, or at least further incentivise the use of tax-minimisation driven related-party transactions involving intangible assets.84

© Commonwealth of Australia

Creative Commons

With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.

Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library’s Central Enquiry Point for referral.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

84. Leigh, Malcolm Turnbull's idea of helping startups: give tax breaks to world's biggest firms, op. cit.