The Government outlined a number of significant measures in the Budget as part of a Digital Economy Strategy. As a part of that strategy, three tax incentives were announced, all proposing to reduce the overall tax paid by businesses conducting certain digital activities and investing in the development of intangible assets.
- Introduction of 30% Digital Games Tax Offset for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure.
- Concessional company tax rate of 17% will apply to income from Australian owned and developed medical and biotechnology patents.
- Taxpayers allowed to opt to calculate the decline in value of eligible intangible depreciating assets using either a self-assessed effective life or the effective life set by statute.
Digital Games Tax Offset
During his budget speech, the Treasurer confirmed that a 30% Digital Games Tax Offset will be introduced for eligible businesses that spend a minimum of $500,000 on qualifying Australian games expenditure. The provisions will seek to exclude games that have gambling elements, or that cannot obtain a classification rating.
The Digital Games Tax Offset will be available from 1 July 2022 and will apply to both Australian resident companies and foreign resident companies with a permanent establishment in Australia. Consultation will commence in mid-2021 and will be used to determine what will constitute qualifying expenditure.
Patent box regime for medical and biotechnology innovations
With effect from 1 July 2022, a concessional company tax rate of 17% will apply to income from Australian owned and developed medical and biotechnology patents. To qualify, the patent must be applied for after the Budget announcement (7.30pm AEST on 11 May 2021).
The details of the regime will be the subject of consultation with industry. Offering a lower tax rate will provide additional incentives to businesses looking to reinvest after-tax dollars in medical and biotechnology research (with the reduced tax rate benefit being lost where dividends are paid by the company rather than being reinvested in the business). The announcement is not clear on the interaction of the reduced tax rate with the R&D tax offset measures, which will be an important feature that will need to be clarified during the consultation period.
Effective life of intangible depreciating assets
Taxpayers will be allowed to choose to calculate the decline in value of eligible intangible depreciating assets (such as copyrights, patents registered designs and in-house software) using either a self-assessed effective life or the effective life set by statute. This is designed to allow taxpayers the opportunity to better align the tax outcome with the economic life of such assets and to encourage research and development activities by providing for greater deductions in relation to these types of assets.
This measure will first apply to relevant assets acquired on or after 1 July 2023, after the cessation of the temporary full expensing regime (as extended in another Budget announcement).