The Federal Treasurer, Josh Frydenberg has released the Government’s budget for 2022-2023. The tax reforms proposed in the Budget are relatively modest, with no major new tax reforms being announced.

The significant tax measures include proposals to expand the patent box tax concession (these patent box measures are discussed further below).

The revenue measures also include tax incentives for small businesses to train employees and to invest in technologies.

There will be a temporary reduction in fuel excise and a proposed reduction of the regulation of fuel and alcohol by streamlining the administration of fuel and alcohol excises and excise-equivalent customs goods.

The Pay As You Go (PAYG) instalment systems will be revised to streamline compliance – e.g., by allowing companies to choose to have their PAYG instalments calculated on current financial performance, extracted from business accounting software (subject to certain adjustments). Other tax compliance regimes will also be modernised, including the lodgement requirements for trusts.

The employee share scheme rules will be revised (particularly in relation to broadly offered schemes). Where employers make larger offers in connection with employee share schemes in unlisted companies, the participants will be able to invest up to:

1. $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70% of dividends and cash bonuses; or
2. Any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

The Government also proposes to amend the employee share scheme rules to remove regulatory requirements for offers to independent contractors where those participants do not have to pay for their interests.

Expanding the Patent Box tax concession

The Budget measures include proposals to extend the proposed patent box tax concession (announced in the 2021-22 Budget) to also support innovations in:

1. The Australian agricultural sector; and
2. Low emissions technology innovations.

These measures will be subject to further industry consultation.

Agricultural sector innovations

The expansion of the proposed patent box tax concession to include the agricultural sector seeks to provide concessional tax treatment for corporate taxpayers who commercialise their eligible patents linked to agricultural and veterinary (agvet), chemical products listed on the Australian Pesticides and Veterinary Medicines Authority (APVMA), PubCRIS (Public Chemicals Registration Information System) register, or eligible Plant Breeder’s Rights (PBRs).

Eligible corporate income will be subject to an effective income tax rate of 17% (rather than 30% for large businesses or 25% for small enterprises).

The concessional rate will only apply to income:

1. To the extent that the R&D took place in Australia; and
2. For PBRs and patents granted or issued after 29 March 2022 and for income years starting on or after 1 July 2023.

Low emissions technology innovations

In line with the proposal for agricultural sector innovations, eligible corporate income relating to low emissions technology innovations will be subject to an effective income tax rate of 17% (rather than 30% for large businesses or 25% for small enterprises).

The concessional rate for eligible income from low emissions technology innovations will only apply to income:

1. To the extent that the R&D took place in Australia; and
2. For patents (which have the potential to lower emissions) granted after 29 March 2022 and for income years starting on or after 1 July 2023.

Medical and biotechnology innovations

The Government also intends to expand the current proposed patent box tax concession for Australian medical and biotechnology innovations to allow greater access for Australian developed innovations patented in the major overseas jurisdictions with equivalent patent regimes.

Standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office (USPTO), and European patents granted under the European Patent Convention (EPC) will be eligible. However, the concession will still be limited to the extent that the R&D has occurred in Australia.