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Australian Legislation Submitted to Parliament on Access to Losses and Intangible Asset Depreciation — Orbitax Tax News & Alerts

The Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 is currently before the Australian House of Representatives. The Bill includes amendments announced as part of the Government’s National Innovation and Science Agenda relating to the access to losses and intangible asset depreciation.

Access to Losses

The Bill includes amendments to introduce a similar business test to supplement the same business test that currently applies for losses when there is a change in ownership. The similar business test is meant to improve access to losses for companies (and certain trusts) that have changed ownership and allow those companies and trusts to seek out opportunities to innovate and grow without losing access to losses.

In general, a company will satisfy the similar business test if the business it carries on throughout the income year when it wants to use a loss (the ‘business continuity test period’) is similar to the business it carried on at the time immediately before the change of ownership or control. In working out whether the current business is similar to the former business, regard will be given to four main factors:

  • The extent to which the assets (including goodwill) 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 commercialization of assets, products, processes, services, or marketing or organizational methods, of the former business.

As proposed, the similar business test will apply to income years starting on or after 1 July 2015.

Intangible Asset Depreciation

The Bill includes amendments to provide taxpayers with the choice to self-assess the effective life of certain intangible depreciating assets rather than using the statutory effective life currently specified in the law. The option would apply for the following assets:

  • Standard patent;
  • Innovation patent;
  • Petty patent;
  • Registered design;
  • Copyright (except copyright in film);
  • License (except one relating to a copyright or in-house software);
  • License relating to a copyright (except copyright in a film);
  • In-house software;
  • Spectrum license;
  • Data-casting transmitter license; and
  • Telecommunications site access right.

With the amendments, taxpayers are also allowed to recalculate the effective life in later years if no longer accurate due to a change in the circumstances relating to the nature of the asset's use, and are required to recalculate the effective life if the cost of an asset increases by 10% or more in a later income year and in certain other cases.

As proposed, the amendments apply to intangible assets that start to be held on or after 1 July 2016.

Click the following link for the full text of the Bill and the explanatory memorandum.