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The upcoming Federal Budget should permanently incorporate business loss carry back tax offset rules into Australia’s income tax regime to encourage investment and bolster business resilience during economic downturns.
This is one of six tax reforms experts at national professional services firm RSM Australia want to see in the 2023-24 Budget to address escalating “cost of business” challenges.
The other reforms are:
- reducing the corporate income tax rate to 25 per cent for all corporate tax entities,
- consistent with the former Government’s Enterprise Tax Plan;
- targeted tax incentives for businesses that embrace clean energy, and their investors;
- GST and Managed Investment Trust (MIT) changes to stimulate housing development;
- tax incentives to encourage greater business investment in research and development; and
- increasing the GST rate and broadening its base, and other employment tax reforms to
improve productivity (see Table 1 below).
RSM Australia National Tax Technical Director Liam Telford backed calls by state and national business representative groups for targeted, efficient, and productive tax reform to boost Australia’s sluggish economy.
“We have recently seen developments at the level of the Executive and Legislature that have created business uncertainty and made Australia less attractive for investment which is counter to tax reform objectives to expand the economy and improve living standards,” Mr Telford said.
“While understandably this Budget is expected to provide cost of living pain relief for Australian households who are doing it tough, measures that also address mounting ‘cost of business’ pressures should also be prioritised,” he said.
“The Australian Government’s plan to build Australia’s sovereign capability through initiatives such as increased investment in manufacturing should also incorporate tax measures that underpin and promote business resilience, stability and continuity.”
RSM Australia Tax Services Director Tony Fulton said the recent COVID pandemic demonstrated the importance of tax measures, such as the loss carry back rules (introduced briefly in 2012-13, and reintroduced in 2020-21), that supported business cashflow and continuity.
“Permanently incorporating this refundability measure into income tax legislation, which was intended over a decade ago, would assist in building business resilience by providing firms with additional liquidity when they most need it. Currently a number of countries such as Canada, France, Germany, Singapore and the United Kingdom allow carry backs for between one and three years.”
Under Australia’s temporary loss carry back regime, eligible entities were allowed to claim losses in 2019-20 to 2022-23 against tax paid in income years from 2018–19.
Between 2021-22 and 2023-24, Treasury estimated that revenue foregone from this tax measure was $6 billion.
However, Mr Fulton said lost revenue would be short-lived and likely to be more than offset by the economic benefits and tax generated from businesses continuing to trade and employees continuing to work.
TABLE 1. Tax measures RSM Australia’s tax experts would like to see in the 2023-24 Federal Budget
| 1. BUILDING BUSINESS AND ECONOMIC RESILIENCE | |
Potential Measure/s | RSM Quote |
| Permanently incorporate loss carry back rules into Australia’s income tax legislation to build business resilience during future economic downturns and encourage business expansion. | “Australia has been subject to a variety of global shocks over the past two decades, which have adversely affected the Federal Government’s ability to improve living standards. Although future shocks are unavoidable, enhancing the adaptability of our RSM Australia Tax Services Director Tony Fulton |
2. IMPROVING COMPETIVENESS | |
Potential Measure/s | RSM Quote |
| Reduce the Corporate Income Tax rate to 25 per cent for all corporate tax entities, or commence transitioning to this level. | “Australia needs to be more competitive with other jurisdictions in relation to its corporate income tax rate. “Not only would reducing the rate of corporate income tax for all companies to 25 per cent bring Australia into closer alignment with the OECD average of 23.73 per cent, but it would also remove inefficiencies inherent in the current two-tiered system, and enable Australian RSM Australia National Tax Technical Director Liam Telford |
3. ENCOURAGING CLEAN ENERGY INVESTMENT | |
Potential Measure/s | RSM Quote |
1. Tax incentives for clean energy investment, such as a 2. Tax rebates or incentives - similar to the Early-Stage | “The Federal Government is firmly committed to achieving Net Zero by 2050, and to reducing greenhouse emissions by 43 per cent from 2005 levels by 2030. “Our tax system is a lever available to achieve both objectives, and it would be great to see targeted tax incentives made available to entities embracing clean energy, as well as their investors.” |
4. INCREASING HOUSING SUPPLY | |
Potential Measure/s | RSM Quote |
1.Reform GST legislation to permit build-to-rent (BTR) 2. Extend proposed concessional Managed Investment 3. Investment allowance to encourage investment in BTR | “Despite the introduction of various tax concession reforms at the state and territory levels, and proposed tax reform at the Federal level, Australia’s rental market is the tightest it has ever been. “Whilst many of the disincentives to investing to augment Australia’s housing stock exist at the state or territory levels, there is arguably more that can be done at the Federal level. For example, unlike build-to-sell developers, build-to-rent developers are currently not RSM Australia Tax Services Director Simon Aitken |
5. ENCOURAGING INNOVATION | |
Potential Measure/s | RSM Quote |
1. Increase the aggregated turnover threshold for refundability / 18.5 per cent premium from $20 million to $50 million – to align to Base Rate Entity (BRE) definition and noting the threshold has not increased in 13 years. This could assist in further incentivising R&D. 2. Re-introduce the Australian Patent Box Regime contained in the Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022, which lapsed on dissolution. This could assist 3. Removal of the $150 million expenditure cap, which discourages large-scale innovation in Australia (follows increase from $100 million to $150 million). | “R&D is a key driver of productivity, economic growth, and improved sustainability. This is supported by CSIRO data showing that every dollar invested in R&D returned at least $3.50 to the broader Australian “Gross expenditure on R&D as a percentage of GDP in Australia fell to 1.68 per cent in FY22, well below the OECD average of 2.72 per cent. Labor’s stated policy is to increase this to 3 per cent but no increase has been observed. Government spending on R&D as a percent of GDP has fallen to 0.49 per cent (in FY23) - its lowest in 30 years. “It is unacceptable that both expenditure as a percentage of GDP in Australia lags the OECD average and is in fact decreasing. If the Government is to meet its stated policy of achieving 3 per cent R&D expenditure as a percentage of GDP, more needs to be done.” RSM Australia National Director Life Sciences and Tax Services Director Dr Rita Choueiri |
6. LIFTING PRODUCTIVITY | |
Potential Measure/s | RSM Quote |
1. Broaden the base and increase the rate of GST (Australia’s GST rate is one of the lowest amongst developed economies and well below the OECD average of 19.2 per cent). 2. To increase productivity in Australia, employment tax reforms could be implemented with respect to short termtemporary inbound residents, including:
| “It is clear that Australia is over-reliant on personal income tax receipts as a source of revenue, more than any comparable OECD country. “Although a sensitive topic politically, reforms to the base and rate of GST in Australia could deliver a significant productivity gain to Australia’s economy. The RSM Australia National Indirect Tax Leader Sam Mohammad "There are incremental amendments to employment tax rules that could be made by the Federal Government that would promote the engagement of short-term RSM Australia Global Employer Services Leader Rick Kimberley |
