The scheme looks to reduce the costs associated with looking into a potential business investment – such as buying a new asset or changing the way a company does business. Currently these costs are not tax deductible. The changes will allow businesses to deduct 'feasibility expenditure' from their tax bills, including for projects that don't end up going ahead.
Under the current rules, there is no allowance for such a deduction which, has resulted in less innovation in the marketplace, particularly in the infrastructure sector.
The proposed reform would ensure that a business would be able to claim a tax deduction for the costs involved in a project and therefore the cost of the investment is less, which makes the project more viable and encourages testing of innovation and ways to improve productivity.
The government is proposing that qualifying expenditure totalling less than $10,000 would be deductible immediately. Deductions could be spread over five years.
The new tax plan will be introduced into Parliament early next year, meaning the change can kick in from the start of the next tax year.
The second proposal would make it easier for start-ups to attract investment and get off the ground by removing "loss continuity rules" – whether or not businesses' losses from a previous year are able to be applied to the current year.
Currently a firm that suffered a loss one year could use that loss to reduce its taxable income in the future, but the rules did not work well for start-ups who were trying to attract new investment.
As start-ups attracted new investment, they often breached the threshold under which they could continue to use these losses, and this has been a barrier to businesses taking risks.
The changes are aimed at removing barriers that are currently holding back economic growth and are part of the government’s Economic Plan to build on initiatives already announced which include a $1 billion investment for R&D tax incentives, record transport infrastructure investment, boosts to apprenticeships and trades training, and changes to immigration settings to make it easier for businesses to access the workers they need.
The details around how the two proposed changes will work would determine their effectiveness - business and tax experts will be consulted on the proposals later this year.