Business income

B. Business income

B1 Denial of deductions by businesses for political donations

General public services — Legislative and executive affairs ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Denial of deduction				2014 TES code:	B1
Estimate Reliability:		Not Applicable				* Category	1-
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Sections 26-22 and 30-242 (3A) of the Income Tax Assessment Act 1997

Business taxpayers are prevented from claiming deductions for gifts or contributions to political parties, independent members and independent candidates.

B2 National Guarantee Fund payment exemption

General public services — Financial and fiscal affairs ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	-	-	-	-
Tax expenditure type:		Exemption				2014 TES code:	B2
Estimate Reliability:		Low
Commencement date:		27 April 2011				Expiry date:
Legislative reference:		Taxation Laws (Clearing and Settlement Facility Support) Act 2004

No income tax or goods and services tax consequences arise when certain payments are made out of the National Guarantee Fund.

Up until 31 March 2005 the National Guarantee Fund undertook the dual roles of investor protection and clearing support for the Australian Securities Exchange. The Corporations Act 2001 provides for the splitting of these functions by allowing the transfer of funds for clearing and settlement system support to another entity. A tax expenditure arises because these transfers are permitted free of tax consequences.

B3 Local government bodies income tax exemption

Other purposes — General purpose inter-governmental transactions ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
690	840	1,160	1,250	1,350	1,460	1,580	1,700
Tax expenditure type:		Exemption				2014 TES code:	B4
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Item 5.1 in the table in Section 50-25 of the Income Tax Assessment Act 1997

Local government bodies and municipal corporations are exempt from income tax. This exemption includes the local governing bodies in Norfolk, Cocos (Keeling) and Christmas Islands.

B4 Exemptions for prescribed international organisations

General public services — Foreign affairs and economic aid ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B5
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1963				Expiry date:
Legislative reference:		Section 6 of the International Organisations (Privileges and Immunities) Act 1963

The income of certain prescribed international organisations is exempt from income tax. Interest and dividends received by such organisations are also exempt from withholding tax. Prescribed international organisations include the United Nations, the World Trade Organization, the Organization for Economic Cooperation and Development and various United Nations specialised agencies.

B5 Interest withholding tax and dividend withholding tax exemptions for overseas charitable institutions

General public services — Foreign affairs and economic aid ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B6
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1971				Expiry date:
Legislative reference:		Paragraph 128B(3)(aa) of the Income Tax Assessment Act 1936

Interest and dividends received by certain overseas charitable institutions are exempt from the interest and dividend withholding tax, respectively. This exemption only applies where the institutions are exempt from tax in their home country.

B6 Investment Manager Regime

General public services — Foreign affairs and economic aid ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B7
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2011				Expiry date:
Legislative reference:		Subdivision 842-I of the Income Tax Assessment Act 1997

The Investment Manager Regime exempts certain investment income of widely held foreign managed funds from Australian tax in specified circumstances.

Certain income from both portfolio and non-portfolio investments will be exempt if the income is only taxed because the fund is taken to have a ‘permanent establishment’ because it has engaged an Australian agent or manager. Certain other investment income will be exempt only from portfolio investments.

B7 Reduced withholding tax under international tax treaties

General public services — Foreign affairs and economic aid ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
430	310	400	430	450	470	500	520
Tax expenditure type:		Exemption, Concessional rate				2014 TES code:	B8
Estimate Reliability:		Low
Commencement date:		2008				Expiry date:
Legislative reference:		International Tax Agreements Act 1953

Tax treaties reduce or eliminate double taxation caused by the exercise of source and residence country taxing rights on cross border income flows. Under Australia’s tax treaties, certain dividends, interest and royalties attract reduced withholding tax rates. These include interest withholding tax exemptions for financial institutions and governments and reduced dividend withholding tax rates where dividends are paid to companies with controlling interests in the companies paying the dividends, provided that certain integrity measures are satisfied.

B8 Income tax exemption for persons connected with certain US Government projects in Australia

Defence ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B9
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 23AA of the Income Tax Assessment Act 1936

The profit and remuneration of United States contractors, armed forces members and their associated employees, or others connected with certain approved United States Government projects in Australia are exempt from Australian income tax, where the income is subject to tax in the United States. Projects to which the exemption applies include the North West Cape Naval Communication Station and the Joint Defence Space Research Facility.

B9 Concessional tax treatment of offshore banking units

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
140	185	205	235	165	155	155	150
Tax expenditure type:		Concessional rate				2014 TES code:	B10
Estimate Reliability:		Medium
Commencement date:		1992				Expiry date:
Legislative reference:		Part III, Division 9A, and Section 128GB of the Income Tax Assessment Act 1936

Income (other than capital gains) derived by an offshore banking unit from eligible offshore banking activities is taxed at a concessional rate of 10 per cent. Interest paid by an offshore banking unit on qualifying offshore borrowings, and gold fees paid by an offshore banking unit on certain offshore gold borrowings, are exempt from withholding tax. From 1 July 2015, the list of eligible offshore banking activities has been updated to better target the regime and address integrity concerns.

B10 Exemption for foreign branch profits from income tax

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B11
Estimate Reliability:		Not Applicable				* Category	4+
Commencement date:		1991				Expiry date:
Legislative reference:		Section 23AH of the Income Tax Assessment Act 1936

In general, income from a business carried on by an Australian company through a permanent establishment (branch) in a foreign country is exempt from income tax. The exempt income broadly comprises operating profits and capital gains but does not include passive or other tainted income where the branch fails an active income test.

B11 Exemption from accruals taxation system for certain transferor trusts

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2 015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B12
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1991				Expiry date:
Legislative reference:		Section 102AAT of the Income Tax Assessment Act 1936

Under the transferor trust rules, the transferor would normally be subject to the accruals taxation system. However, the rules do not apply in relation to certain transfers to family, discretionary or non-discretionary trusts, or to certain transfers made before the transferor commenced being a resident. Transferor trust rules apply to Australian residents who have transferred property or services to a non-resident trust estate.

B12 Exemption from accruals taxation system for controlled foreign companies

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B13
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1991				Expiry date:
Legislative reference:		Sections 385 and 432 of the Income Tax Assessment Act 1936

The accruals taxation system normally applies to income derived by controlled foreign companies (CFCs). However, most tainted income derived by CFCs in listed countries is exempt from the accruals taxation system (applied to the attributable taxpayer) as it is generally comparably taxed. An exemption also applies to CFCs that derive 95 per cent or more of their income from genuine business activities.

B13 Exemption from interest withholding tax on certain securities

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
1,800	1,840	1,730	1,730	1,730	1,730	1,730	1,730
Tax expenditure type:		Exemption				2014 TES code:	B14
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Section 128F and 128FA of the Income Tax Assessment Act 1936

Certain publicly offered debentures and debt interests are eligible for exemption from interest withholding tax, where those debentures and debt interests are issued in Australia by a state or territory, the Commonwealth, a resident Australian company, a non-resident company operating through a permanent establishment, or certain public unit trusts. The exemption is not available where it involves certain dealings between associated entities.

B14 Exemption of inbound non-portfolio dividends from income tax

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
510	500	580	600	530	510	510	510
Tax expenditure type:		Exemption				2014 TES code:	B15
Estimate Reliability:		Medium — Low
Commencement date:		1991				Expiry date:
Legislative reference:		Section 23AJ of the Income Tax Assessment Act 1936

Non-portfolio dividends are dividends paid to a company where that company has a 10 per cent or greater voting interest in the company paying the dividend. These dividends are exempt from income tax where they are paid to an Australian resident company by a company resident in a foreign country.

B15 Interest withholding tax concession on interest payments by financial institutions

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Concessional rate				2014 TES code:	B16
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1994				Expiry date:
Legislative reference:		Section 160ZZZJ of the Income Tax Assessment Act 1936

The notional interest paid by an Australian branch of a foreign bank on borrowings from the foreign bank attracts a reduced effective rate of withholding tax of 5 per cent relative to the benchmark rate of 10 per cent.

B16 International tax — concessional rate of final withholding tax on certain distributions by clean building managed investment trusts to foreign residents

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
Included in B81
Tax expenditure type:	Concessional rate				2014 TES code:	B17
Estimate Reliability:
Commencement date:		2012				Expiry date:
Legislative reference:		Section 12-385 of Schedule 1 to the Taxation Administration Act 1953 Division 7 of the Taxation Administration Regulations 1976

Distributions of Australian source net income (other than dividends, interest and royalties) paid to foreign residents by Australian managed investment trusts that only hold energy efficient buildings that commenced construction on or after 1 July 2012 are subject to a final withholding tax. The general rate of 30 per cent is reduced to 10 per cent for residents of countries specified in the regulations.

B17 Regional headquarters set-up cost deduction

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
..	..	..	..	..	..	..	..
Tax expenditure type:		Deduction				2014 TES code:	B18
Estimate Reliability:		Very Low
Commencement date:		1994				Expiry date:
Legislative reference:		Sections 82C to CE of the Income Tax Assessment Act 1936

Regional headquarter companies (RHQs), as determined by the Treasurer, are entitled to deductions in respect of specified set-up costs. These costs must be incurred within a two-year period commencing 12 months before and ending 12 months after the RHQ first derives assessable income from the provision of ‘regional headquarters support’.

B18 Threshold exemption for thin capitalisation

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B19
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		2001				Expiry date:
Legislative reference:		Sections 820-35 and 820-37 of the Income Tax Assessment Act 1997

The thin capitalisation regime is an integrity measure designed to ensure Australian and foreign owned multinational entities do not allocate an excessive amount of debt to their Australian operations.

Taxpayers will not be subject to the thin capitalisation regime if their debt deductions and those of their associates do not exceed the threshold amount of $250,000 for income years commencing prior to 1 July 2014 and $2 million for later income years. Outward investing entities are also excluded from the thin capitalisation regime if at least 90 per cent of their assets are Australian assets.

B19 Security agency transaction exemption

Defence ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B20
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1 July 2005				Expiry date:
Legislative reference:		Division 850 of Schedule 1 to the Taxation Administration Act 1953

The heads of the Australian Security Intelligence Organisation and the Australian Secret Intelligence Service have the power to declare that Commonwealth tax laws do not apply to a specified entity in relation to a specified transaction. This ensures that tax authorities do not need to obtain information that should remain secret in the interests of national security.

B20 Not-for-profit private health insurers income tax exemption

Health ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
95	110	135	105	105	105	105	105
Tax expenditure type:		Exemption				2014 TES code:	B21
Estimate Reliability:		Medium — Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Item 6.3 of the table in Section 50-30 of the Income Tax Assessment Act 1997

The income of private health insurers covered by the Private Health Insurance Act 2007 is exempt from income tax if the insurer is not operated for the gain or profit of its individual members.

B21 Deductibility for entertainment provided without charge to those in need

Social security and welfare ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B23
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		16 December 1985				Expiry date:
Legislative reference:		Section 32-50 of the Income Tax Assessment Act 1997

The cost of entertainment, such as food and drink, provided in the course of carrying on a business is usually denied as a deduction. This rule does not apply where the entertainment is provided without charge to members of the public who are in need.

B22 Life insurance investment income taxation concession

Social security and welfare ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption, Offset, Concessional rate				2014 TES code:	B24
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2000				Expiry date:
Legislative reference:		Sections 26AH and 160AAB of the Income Tax Assessment Act 1936

Some life insurance investment policyholders receive a concessional rate of tax because the policyholders’ undistributed income is taxed at the company rate. This ensures that a reversionary bonus (the income distributed from a life insurance policy) on which the life insurance company has paid tax is not subject to double taxation in the hands of policyholders.

B23 Payments for mining on Aboriginal land tax exemption

Social security and welfare ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B25
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		8 July 1997				Expiry date:
Legislative reference:		Section 59-15 of the Income Tax Assessment Act 1997

Certain mining payments to Aboriginal and Torres Strait Islander persons or certain distributing bodies are exempt from income tax.

B24 Exemption of foreign currency gains and losses from certain low balance accounts

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B26
Estimate Reliability:		Not Applicable				* Category	2+/-
Commencement date:		1 July 2003				Expiry date:
Legislative reference:		Subdivision 775-D of the Income Tax Assessment Act 1997

Taxpayers with low balance bank accounts or credit card accounts denominated in a foreign currency may elect to disregard gains and losses attributable to changes in exchange rates (made in respect of the account). This option is available to all taxpayers other than authorised deposit-taking institutions (ADIs) and non-ADI financial institutions. Accounts with a combined credit or debit balance that does not exceed the foreign currency equivalent of A$250,000 will generally be eligible.

B25 Infrastructure — enhanced loss utilisation for designated projects

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B27
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		2013				Expiry date:
Legislative reference:		Section 272-100 of the Income Tax Assessment Act 1936 Section 165-35 and Division 415 of the Income Tax Assessment Act 1997

Income tax losses of a designated infrastructure project are uplifted at the government bond rate and exempt from the loss recoupment tests.

Designated infrastructure project status is conferred by the Chief Executive Officer of Infrastructure Australia on privately financed infrastructure of national significance based on a range of criteria, including a global capital expenditure cap of $25 billion over the period from Royal Assent of the enabling legislation to 30 June 2017.

B26 Off-market share buy-backs

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Offset				2014 TES code:	B28
Estimate Reliability:		Not Applicable				* Category	4+
Commencement date:		1990				Expiry date:
Legislative reference:		Division 16K of Part III and 177EA of the Income Tax Assessment Act 1936

The proceeds paid to shareholders who participate in an off-market share buy-back are split into a dividend component and a capital component. The dividend component of the buy-back proceeds may be fully franked. This allows companies that undertake off-market share buy-backs to distribute franking credits to participating shareholders beyond the level that would normally be available. Treating part of the proceeds as a dividend makes off-market share buy-backs more attractive to low marginal tax rate taxpayers. This facilitates streaming of franking credits to those shareholders that can obtain the most benefit. The tax expenditure is equal to the difference in tax payable, had those franking credits been distributed uniformly to all shareholders.

B27 Taxation assistance for victims of Australian natural disasters

Other purposes — Natural disaster relief ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
58	31	10	3	3	3	*	*
Tax expenditure type:		Exemption				2014 TES code:	B29
Estimate Reliability:		Low				* Category	1+
Commencement date:		Various				Expiry date:	14 July 2014
Legislative reference:		Sections 11-55, 59-55, 59-60 of the Income Tax Assessment Act 1997

Certain payments to victims of Australian natural disasters are not taxable. Without a specific provision, such grants would generally be treated as assessable income. Expenses related to the carrying on of a business (that is, those funded by using the grant) would generally be deductible.

B28 Tax exemption for National Rental Affordability Scheme incentives

Housing and community amenities ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
1	3	5	15	35	68	80	98
Tax expenditure type:		Exemption				2014 TES code:	B30
Estimate Reliability:		Very Low
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Division 380 of the Income Tax Assessment Act 1997

The National Rental Affordability Scheme offers tax and cash incentives to providers of new dwellings on the condition that they are rented to low and moderate income households at a rate that is at least 20 per cent below market rates. The tax expenditure relates to revenue forgone from exempting both parts of the incentive from income tax.

B29 Film concessions refundable tax offsets — exemption

Recreation and culture ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
32	55	61	69	50	86	66	64
Tax expenditure type:		Exemption				2014 TES code:	B32
Estimate Reliability:		Medium
Commencement date:		2001				Expiry date:
Legislative reference:		Division 376 of the Income Tax Assessment Act 1997

Film production companies incurring expenditure on certain productions in Australia may be eligible for refundable tax offsets. The tax offsets are the location offset, the producer offset and the post, digital and visual effects offset.

As the refundable tax offset is an expense item, it does not appear as a tax expenditure in its own right. However, a tax expenditure arises because payments made under this arrangement are exempt from tax.

B30 Exemption from the tax shelter prepayments measure for certain passive investments

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B34
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1988				Expiry date:
Legislative reference:		Section 82KZME of the Income Tax Assessment Act 1936

A prepayment in relation to investments in infrastructure bonds, shares, units, rental property and arrangements entered into before 11 November 1999 to which product rulings apply, continues to be immediately deductible. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions than the benchmark treatment.

From 1 July 2007, small businesses with aggregated annual turnover of less than $2 million have been able to access this concession under the Small Business Framework.

B31 Prepayment rule for small business taxpayers and non-business expenditure by individuals

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B35
Estimate Reliability:		Not A pplicable				* Category	2+
Commencement date:		2001				Expiry date:
Legislative reference:		Section 82KZM of the Income Tax Assessment Act 1936

Prepayments for qualifying services by eligible small businesses and non-business prepayments by individual taxpayers are immediately deductible.

B32 The 10-year rule for prepayments

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B36
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1988				Expiry date:
Legislative reference:		Subsection 82KZL(1) of the Income Tax Assessment Act 1936

A prepayment for services to be provided over a period of 10 years or more (for example, life membership) is evenly deducted over the first 10 years of that period. The benchmark treatment of prepayments is that they are deductible over the period of the expenditure. The tax expenditure allows deductions to be spread over a shorter period and consequently it allows greater deductions in the first 10 years than the benchmark treatment.

B33 Deferral of profit from early sale of double wool-clips

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B37
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1966				Expiry date:
Legislative reference:		Section 385-135 of the Income Tax Assessment Act 1997

As a consequence of drought, fire or flood, primary producers carrying on a sheep grazing business in Australia may conduct advanced shearing. In these circumstances, a woolgrower may elect to have the assessment of the profit from advanced shearing deferred to the succeeding income year.

B34 Deferral or spreading of tax on profit from the forced disposal or death of livestock

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B38
Estimate Reliability:		Not Applicable				* Category	2+/-
Commencement date:		1961				Expiry date:
Legislative reference:		Sections 385-90 to 385-125 of the Income Tax Assessment Act 1997

Primary producers who receive income from the forced disposal or death of livestock can elect to defer this income and use it to reduce the cost of replacement livestock within the next five income years. Alternatively, primary producers can elect to spread profits over the next four income years (or 10 years if the forced disposal was in relation to the control of bovine tuberculosis).

B35 Farm Management Deposit scheme

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
230	150	145	170	290	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B39
Estimate Reliability:		Medium				* Category	3+
Commencement date:		1999				Expiry date:
Legislative reference:		Division 393 of the Income Tax Assessment Act 1997

The Farm Management Deposit (FMD) scheme allows primary producers (with no more than $100,000 of non-primary production income) to defer their income tax liability. Primary producers are able to claim deductions for their FMD made in the year of deposit, with subsequent withdrawals being subject to assessment in the year of withdrawal. The FMD has a maximum limit on deposits of $400,000, which will, subject to the passage of legislation, increase to $800,000 from 1 July 2016.

B36 Income tax averaging for primary producers

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
145	150	*	*	*	*	*	*
Tax expenditure type:		Concessional rate				2014 TES code:	B40
Estimate Reliability:		High				* Category	3+
Commencement date:		1938				Expiry date:
Legislative reference:		Division 392 of the Income Tax Assessment Act 1997

Primary producers can elect to pay tax at a tax rate based on their average income earned over the previous five income
years. This provides a concession because, on balance, the saving from paying less tax in high-income years outweighs additional tax paid in low income years.

B37 Spreading of insurance income for loss of timber or livestock

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B41
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1956				Expiry date:
Legislative reference:		Section 385-130 of the Income Tax Assessment Act 1997

Insurance payouts may be received in relation to timber lost because of fire, or livestock lost due to natural disasters. Primary producers who receive such insurance payouts can elect to spread the income equally over five income years, resulting in a tax deferral.

B38 Valuation of livestock from natural increase

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B42
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1951				Expiry date:
Legislative reference:		Division 70C of the Income Tax Assessment Act 1997

For the purpose of working out the value of trading stock, several different methods are available for determining the value of animals acquired by natural increase. These methods may produce a value different to the actual cost of production, creating a tax expenditure.

B39 Denial of depreciation deduction for car value above the luxury car tax threshold

Transport and communication ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-150	-140	-130	-130	-140	-140	-140	-140
Tax expenditure type:		Denial of deduction				2014 TES code:	B43
Estimate Reliability:		Low
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Section 40-230 of the Income Tax Assessment Act 1997

If the value of a car used for income-producing purposes exceeds a certain amount (‘car limit’), the amount of depreciation deductions that can be claimed is capped at the ‘car limit’. This represents a negative tax expenditure as the full value of the car should be depreciated under the benchmark.

B40 Shipping — investment incentives

Transport and communication ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	30	30	30	30	30	30	30
Tax expenditure type:		Exemption, Accelerated write-off, Deferral				2014 TES code:	B44
Estimate Reliability:		Very Low
Commencement date:		1 July 2012				Expiry date:
Legislative reference:		Division 51-100 of the Income Tax Assessment Act 1997 Subsection 128B(3) of the Income Tax Assessment Act 1936 Item 10 of the table to Subsection 40-102(4) of the Income Tax Assessment Act 1997 Subsection 40-285(5) of the Income Tax Assessment Act 1997

From 1 July 2012, taxation incentives have been provided to encourage investment in the Australian shipping industry and to facilitate Australian competition on international routes.

B41 Shipping — refundable tax offset for employers of qualifying Australian seafarers

Transport and communication ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	2	2	-	-	-
Tax expenditure type:		Exemption				2014 TES code:	B45
Estimate Reliability:		Medium
Commencement date:		1 July 2012				Expiry date:	30 Jun 2015
Legislative reference:		Subdivision 61-N of the Income Tax Assessment Act 1997

A refundable tax offset is available to qualifying companies that employ qualifying Australian seafarers. Legislation to repeal the seafarer tax offset from the 2015-16 income year is currently before the Parliament. As the refundable tax offset is an expense item, it does not appear as a tax expenditure in its own right. However, a tax expenditure arises because payments made under this arrangement are exempt from tax.

B42 Deductions for boat expenditure

Other economic affairs — Tourism and area promotion ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	201 8-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B46
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1974				Expiry date:
Legislative reference:		Former section 26-50 of the Income Tax Assessment Act 1997 Section 26-47 of the Income Tax Assessment Act 1997

For income years commencing on or after 1 July 2007, taxpayers who cannot demonstrate that they are carrying on a business using a boat can claim deductions for expenses incurred in boating activities up to the level of income generated in that year from their boating activity, and carry forward any excess deductions and deduct them against income from that boating activity in future years.

B43 Accelerated depreciation of fencing and fodder storage assets for primary producers

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	2	30	45	60
Tax expenditure type:		Accelerated write-off				2014 TES code:	New
Estimate Reliability:		Low
Commencement date:		12 May 2015				Expiry date:
Legislative reference:		Sections 12-5, 40-10 and 40-53 of the Income Tax Assessment Act 1997

All primary producers will be allowed to immediately deduct capital expenditure on fencing. This applies to income years from 12 May 2015. Primary producers will also be allowed to depreciate over three years all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed.

Currently, the effective life for fences is up to 30 years and fodder storage assets is up to 50 years.

B44 Capital gains tax concession for carried interests paid to venture capital partners

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Concessional rate, Deferral				2014 TES code:	B48
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2002				Expiry date:
Legislative reference:		Sections 104-255 and 118-21 of the Income Tax Assessment Act 1997, Venture Capital Act 2002

Venture capital fund managers may be paid a performance-based share of partnership profits by investors. Such performance payments are ‘carried interests‘. Under the benchmark, these entitlements are taxable income of the fund managers as they accrue. Instead, under the law, an entitlement to receive a carried interest is a capital gains tax event in the hands of venture capital fund managers and is not treated as income. Consequently, taxation of the income is deferred until the gains are realised and individual managers are eligible for the 50 per cent discount on their carried interest.

B45 Clarification of the debt or equity treatment of perpetual subordinated debt

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B49
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997 Division 974 of the Income Tax Assessment Regulations 1997

Under certain circumstances, ‘profitability, insolvency or negative earnings conditions’ do not preclude Upper Tier 2 perpetual subordinated debt and similar instruments from being classified as debt for tax purposes. This means that distributions on such instruments may be treated as tax deductible interest payments rather than non-tax deductible dividend payments. Perpetual subordinated debt issued by financial institutions to raise regulatory capital would typically be classified as equity under the debt-equity rules.

B46 Concessional taxation for small business

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	250	950	1,000	1,050
Tax expenditure type:		Concessional rate, Offset				2014 TES code:	New
Estimate Reliability:		Medium
Commencement date:		1 July 2015				Expiry date:
Legislative reference:		Subsection 23(2) of the Income Tax Rates Act 1986 Subdivision 328-F of the Income Tax Assessment Act 1997

Individual taxpayers with business income from an unincorporated small business are eligible for a 5 per cent tax discount on the income tax payable on that business income from the 2015-16 income year. The
discount is capped at $1,000 per individual for each income year and is delivered as a tax offset.

In addition, the company tax rate has been reduced to 28.5 per cent for companies with aggregated annual turnover less than $2 million, applying from the 2015-16 income year. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to a 30 per cent rate on all their taxable income.

B47 Deduction for borrowing expenses

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B50
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 1997				Expiry date:
Legislative reference:		Section 25-25 of the Income Tax Assessment Act 1997

A taxpayer is able to claim a deduction (spread over the shorter of the term of the loan or five years) for borrowing expenses incurred for borrowing money that is used for the purpose of producing assessable income. Borrowing expenses incurred in these circumstances would otherwise be capital in nature and included in the cost base of the asset.

B48 Deduction for certain co-operatives repaying government loans

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B51
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1973				Expiry date:
Legislative reference:		Sections 117 and 120 of the Income Tax Assessment Act 1936

Cooperative companies whose primary object is the acquisition from their shareholders of commodities or animals for disposal or distribution can claim a deduction for repayments of certain Australian and state government loans. However, the deduction is allowed only if 90 per cent or more of the value of the company is held by shareholders who supply the company with the commodities or animals.

B49 Immediate deduction for professional expenses

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	-	10	10	10
Tax expenditure type:		Accelerated write-off				2014 TES code:	New
Estimate Reliability:		Low
Commencement date:		1 July 2015				Expiry date:
Legislative reference:		Section 40-880 of the Income Tax Assessment Act 1997

From 1 July 2015 small businesses with an aggregated annual turnover of less than $2 million can immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.

Previously, these professional costs associated with a new business start-up were able to be deducted over a five year period, which is the benchmark treatment.

B50 Income tax exemption for prescribed entities

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	New
Estimate Reliability:		Not Applicable				* Category	4+
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Division 50 of the Income Tax Assessment Act 1997

The income of various prescribed entities is exempt from income tax. Prescribed entities include, amongst other things:

• Commonwealth, state and territory public authorities;
• public and not-for-profit hospitals;
• trade unions and employer associations;
• industry-specific not-for-profit associations predominantly devoted to promoting the development of aviation, tourism, agriculture, manufacturing or industry;
• registered charities, public educational, scientific, and community service entities; and
• associations and clubs established for the encouragement of sports, music, art or literature.

B51 Income tax exemptions for foreign superannuation funds

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B52
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1981				Expiry date:
Legislative reference:		Section 128D and paragraph 128B(3)(jb) o f the Income Tax Assessment Act 1936

Interest income and dividends received by foreign superannuation funds are exempt from income tax. This income is also exempt from interest and dividend withholding taxes if it is exempt from income tax in the country in which the foreign superannuation fund resides.

B52 Managed investment trusts — election to allow capital gains tax to be the primary code for disposals of certain assets

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Concessional rate				2014 TES code:	B54
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Division 275 of the Income Tax Assessment Act 1997

From the 2008-09 income year eligible managed investment trusts (MITs) can make an irrevocable election to apply the capital gains tax regime to gains and losses on disposals of certain assets (primarily shares, units and real property). If an eligible MIT does not make an irrevocable election to have capital account treatment, then gains and losses on disposals of shares and units will be treated on revenue account.

B53 Philanthropy — income tax exemption for small not-for-profit companies

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
..	..	..	..	..	..	..	..
Tax expenditure type:		Exemption				2014 TES code:	B57
Estimate Reliability:		Low
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Subsection 23(6) of the Income Tax Rates Act 1986

The rate of income tax payable by a not for profit company that has a taxable income not exceeding $416 in a given income year is nil. Income tax is payable at a rate of 55 per cent on income between $416 and $915, or between $416 and $863 if the company is a small business entity. When a not for profit company has an income over $915, or $863 if a small business entity, the applicable company tax rate is applied from the first dollar.

This arrangement has the effect of providing an exemption from income tax for not-for-profit companies for the first $416 of income, and then phasing in the ordinary corporate income tax rate of 30 per cent on all income, including the first $416, when the company has income between $416 and $915. Alternatively, if the company is a small business entity, this arrangement has the effect of providing an exemption from income tax for the first $416 of income then phasing in the small business corporate income tax rate of 28.5 per cent on all income, including the first $416, when the company has income between $416 and $863. When a not-for-profit company has an income over $915 or $863 if a small business entity, the applicable company tax rate is applied from the first dollar.

B54 Philanthropy — refund of franking credits for certain income tax exempt philanthropic entities

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
800	580	560	740	*	*	*	*
Tax expenditure type:		Rebate				2014 TES code:	B58
Estimate Reliability:		High				* Category	3+
Commencement date:		1 July 2000				Expiry date:
Legislative reference:		Subdivision 207-E of the Income Tax Assessment Act 1997

Generally, entities that are not subject to Australian tax cannot benefit from franking credits on distributions from Australian companies. However, entities that are endorsed as income tax exempt charities or income tax exempt deductible gift recipients are able to claim a refund of franking credits on distributions from Australian companies.

B55 Tax exemption for Early Stage Venture Capital Limited Partnerships

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Exemption				2014 TES code:	B59
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		21 June 2006				Expiry date:
Legislative reference:		Venture Capital Act 2002 Sections 26-68, 51-52, 51-54 and Subdivision 118-F of the Income Tax Assessment Act 1997

Resident and foreign partners are exempt from tax on revenue and capital gains derived in respect of their eligible investments in Early Stage Venture Capital Limited Partnerships. An Early Stage Venture Capital Limited Partnership is a flow-through investment vehicle that makes equity investments in early stage enterprises.

B56 Tax exemption for small and medium credit unions

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
..	..	..	..	..	..	..	..
Tax expenditure type:		Exemption				2014 TES code:	B60
Estimate Reliability:		Medium
Commencement date:		Introduced before 1985				Expiry date:
Legislative reference:		Sections 6H and 23G of the Income Tax Assessment Act 1936 Section 23(7) of the Income Tax Rates Act 1986

Recognised small credit unions are exempt from tax on interest derived from loans to members. Recognised medium credit unions are subject to an effective tax rate based on a sliding scale according to their level of taxable income.

B57 Tax incentive for Standard Business Reporting software

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	-	-	-	35
Tax expenditure type:		Offset				2014 TES code:	New
Estimate Reliability:		Very Low
Commencement date:		1 July 2017				Expiry date:	2018
Legislative reference:		Not yet legislated

Small business with an aggregated annual turnover of less than $2 million will be provided with a $100 non-refundable tax offset for expenditure on Standard Business Reporting (SBR) enabled software. SBR software allows prefilling of business and accounting data into government reports and submission of the reports directly and securely to the government.

This offset will apply from 1 July 2017, and will be available for software purchases or subscriptions made in the 2017-18 financial year only.

B58 Tax incentives for angel investors

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-	-	-	-	-	50	50
Tax expenditure type:		Exemption				2014 TES code:	New
Estimate Reliability:		Low
Commencement date:		2016				Expiry date:
Legislative reference:		Not yet legislated

Investments in small, early-stage Australian companies will receive concessional tax treatment. The tax incentive will provide investors with:

• a 20 per cent non-refundable tax offset based on the investment amount, capped at a total offset amount of $200,000 per investor; and
• an exemption from capital gains tax on the investment provided a minimum three-year holding period has been met.

B59 Treatment of distributions on certain term subordinated notes

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B61
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		1 July 2001				Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997 Division 974 of the Income Tax Assessment Regulations 1997

A solvency clause can allow the issuer to defer payment on subordinated notes if the payment would cause insolvency. These clauses do not preclude certain term subordinated notes from being classified as debt for tax purposes. The distributions on such notes may be treated as tax deductible interest payments rather than non-tax deductible dividend payments. Under the benchmark, term subordinated notes with solvency clauses would typically be classified as equity under the debt-equity rules.

B60 Treatment of finance leases

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B62
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1936				Expiry date:
Legislative reference:		Divisions 240 and 250 of the Income Tax Assessment Act 1997 Division 42A of the Income Tax Assessment Act 1936

A finance lease is, in substance, equivalent to a loan from the lessor to the lessee to finance the purchase of the leased asset. The lessor (financier) acquires the leased asset at the request of the lessee (borrower) and leases the asset to the lessee. On expiry of the lease, legal ownership of the asset is transferred to the lessee at minimal or no cost. During the term of the lease, while the lessor is the legal owner of the leased asset, the lessee has effective economic ownership through having control, use and enjoyment of the asset.

Except where specific provisions apply, for example, Divisions 240 and 250 of the Income Tax Assessment Act 1997, finance leases are taxed as leases rather than as loans. Given their economic substance, finance leases should be taxed as a loan from the lessor to the lessee to acquire the leased asset under the benchmark. That is, the interest pay
ments should be deductible to the lessee and assessable to the lessor, and the lessee be able to claim depreciation deductions for the user cost of the leased asset.

B61 Trust loss rules — family trusts

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B63
Estimate Reliability:		Not Applicable				* Category	3+
Commencement date:		9 May 1995				Expiry date:
Legislative reference:		Subdivision 272-D of Schedule 2F to the Income Tax Assessment Act 1936

The family trust rules provide a concession to the individual specified in a family trust election (the test individual) of a family trust, and their family group, by allowing the transfer of the benefit of losses and debt deductions to members of the family trust.

The trust loss rules — the benchmark treatment — restrict trust losses and debt deductions from being transferred to persons who did not bear the economic burden.

B62 Accelerated write-off for expenditure on water facilities for primary producers

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
70	60	6	-5	6	5	2	1
Tax expenditure type:		Accelerated write-off				2014 TES code:	B69
Estimate Reliability:		Medium — Low
Commencement date:		23 May 1980				Expiry date:
Legislative reference:		Subdivision 40-F of the Income Tax Assessment Act 1997

Note: estimates include tax expenditures B62, B65 and B68

Primary producers are allowed to immediately deduct capital expenditure on water facilities occurring on or after 12 May 2015. Previously this expenditure was deductible over three years. Water facilities include dams, earth tanks, underground tanks, concrete or metal tanks, tank stands, bores, wells, irrigation channels or similar improvements, pipes, pumps, water towers, and windmills. The expenditure must be incurred primarily for conserving and conveying water for use in primary production.

B63 Deduction for horse breeding stock

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B64
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1992				Expiry date:
Legislative reference:		Sections 70-60 and 70-65 of the Income Tax Assessment Act 1997

Taxpayers can elect to write off horse breeding stock, acquired on or after 19 August 1992, at up to 25 per cent of the cost of sires per annum and up to 33⅓ per cent of the cost of mares per annum, on a prime cost basis.

B64 Deduction of the capital cost of telephone lines and electricity connections

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B65
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		24 June 1981				Expiry date:
Legislative reference:		Subdivision 40-G of the Income Tax Assessment Act 1997

Capital expenditure incurred in connecting a telephone line to a primary production property and capital expenditure incurred in connecting or upgrading mains electricity to a property on which a business is conducted can be deducted in equal instalments over 10 years.

B65 Landcare deduction for primary producers

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
Included in B62
Tax expenditure type:		Deduction				2014 TES code:	B66
Estimate Reliability:
Commencement date:		11 December 1973				Expiry date:
Legislative reference:		Subdivision 40-G of the Income Tax Assessment Act 1997

Primary producers and business users of rural land can claim a deduction for capital expenditure on a landcare operation in the year that it is incurred. Landcare operations may include soil conservation, prevention of land degradation or other related measures.

B66 Sustainable Rural Water Use and Infrastructure Program

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	25	35	-	-5	30	-20	-25
Tax expenditure type:		Exemption				2014 TES code:	B67
Estimate Reliability:		Medium — Low
Commencement date:		1 April 2010				Expiry date:
Legislative reference:		Section 59-65 of the Income Tax Assessment Act 1997

From 1 April 2010, taxpayers may choose to make payments received under eligible Sustainable Rural Water Use and Infrastructure Program agreements free of income tax (including capital gains tax), with expenditures funded by such payments not being deductible.

B67 Tax write-off for horticultural plants

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B68
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1995				Expiry date:
Legislative reference:		Subdivision 40-F of the Income Tax Assessment Act 1997

Capital expenditure incurred in establishing horticultural plants can be written off using an accelerated depreciation regime, with deductions available from the first commercial season. The cost of establishing plants with an effective life of less than three years can be written off in the first commercial year. Plants with an effective life of more than three years can be depreciated over a shorter period than their effective life using the maximum write-off periods set out in the legislation.

B68 Water facilities and landcare concession for irrigation water providers

Agriculture, forestry and fishing ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
Included in B62
Tax expenditure type:		Deduction				2014 TES code:	B70
Estimate Reliability:
Commencement date:		1 July 2004				Expiry date:
Legislative reference:		Subdivisions 40-F and 40-G of the Income Tax Assessment Act 1997

Certain irrigation water providers can claim an immediate deduction for capital expenditure on landcare activities and can claim a deduction for capital expenditure on water facilities over three years. This aligns the deductions available to primary producers and businesses using rural land with deductions available to irrigation water providers which supply those primary producers and businesses with water.

B69 Absence of depreciation recapture for certain assets

Mining, manufacturing and construction ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B71
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1982				Expiry date:
Legislative reference:		Division 43 and Section 110-45 of the Income Tax Assessment Act 1997

Certain buildings and structures receive deductions that are not recaptured by balancing adjustment on disposal of the asset. This tax expenditure is offset by reductions in the capital gains tax cost base of the assets concerned.

B70 Exploration and prospecting deduction

Mining, manufacturing and construction ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
500	500	-450	-450	-450	-400	-400	-400
Tax expenditure type:		Deduction				2014 TES code:	B72
Estimate Reliability:		Medium
Commencement date:		1968				Expiry date:
Legislative reference:		Sections 40-25 and 40-730, and Subsections 40-80(1) and 40-95(12) of the Income Tax Assessment Act 1997

Expenditure on exploration or prospecting for the purpose of mining (including for petroleum) and quarrying is immediately deductible. In addition, the cost of a depreciating asset is immediately deductible if the taxpayer first uses the asset for exploration or prospecting for minerals (including petroleum) or quarry materials obtainable by mining operations, subject to certain conditions.

From 14 May 2013, the cost of a mining, quarrying or prospecting right or information first used for exploration is generally deductible over its effective life or 15 years, whichever is shorter. However, realignment and farm-in, farm-out arrangements remain immediately deductible.

B71 Statutory effective life caps

Transport and communication ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
1,495	1,710	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B73
Estimate Reliability:		Low				* Category	4+
Commencement date:		2002				Expiry date:
Legislative reference:		Section 40-102 of the Income Tax Assessment Act 1997

Statutory effective life caps provide a shorter write-off period for some assets, where the cap is below the effective life determined by the Commissioner of Taxation. Statutory caps exist for assets such as aircraft, trucks, truck trailers, buses, tractors and harvesters.

B72 Accelerated depreciation for in-house software

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-270	-80	-5	10	10	-30	-30	-50
Tax expenditure type:		Accelerated write-off				2014 TES code:	B74
Estimate Reliability:		Low
Commencement date:		1998				Expiry date:
Legislative reference:		Subdivisions 40-B and 40-E of the Income Tax Assessment Act 1997

Expenditure on acquiring in-house software is depreciated over a statutory effective life of four years, rather than an effective life that is self-assessed by the taxpayer or that is determined by the Commissioner of Taxation. Expenditure incurred on developing software may be allocated to a software development pool and deducted over four years, enabling a deduction to be claimed during development and before completion.

From 1 July 2015, the statutory effective life was increased to five years, which is consistent with the benchmark treatment.

From 1 July 2016, businesses will have the option to self-assess the effective life of acquired in-house software.

B73 Capital works expenditure deduction

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
840	900	950	965	1,000	1,035	1,070	1,105
Tax expenditure type:		Accelerated write-off				2014 TES code:	B75
Estimate Reliability:		Low
Commencement date:		21 August 1979				Expiry date:
Legislative reference:		Division 43 of the Income Tax Assessment Act 1997

A taxpayer can claim a deduction for capital works expenditure over a period that is generally shorter than the effective life of the asset. Capital works can be deducted at either 2.5 per cent (over 40 years) or 4 per cent (over 25 years) of the construction expenditure, depending on when construction started and how the capital works are used.

B74 Depreciation balancing adjustment roll-over relief

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B76
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1952				Expiry date:
Legislative reference:		Section 40-340 of the Income Tax Assessment Act 1997

‘Balancing adjustments‘ arise when the disposal value of a depreciating asset exceeds its depreciated value. The tax liability for such balancing adjustments can be deferred where the balancing adjustment arises from certain changes in ownership, such as disposal as a result of a marriage breakdown. The transferee is taken to acquire the asset at the written down value and must depreciate the asset in the same way as the transferor.

B75 Depreciation pooling for low value assets

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
5	5	10	10	5	5	10	15
Tax expenditure type:		Accelerated write-off				2014 TES code:	B77
Estimate Reliability:		Medium
Commencement date:		2000				Expiry date:
Legislative reference:		Subdivision 40-E of the Income Tax Assessment Act 1997

Assets costing less than $1,000 can be written off at the declining balance rate of 37.5 per cent through a low value asset pool. Once a taxpayer elects to create a low value pool, all assets that cost less than $1,000 are subject to the declining balance rate treatment.

B76 Depreciation to nil value rather than estimated scrap value

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B78
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		1936				Expiry date:
Legislative reference:		Division 40 of the Income Tax Assessment Act 1997

Taxpayers are entitled to write-off the cost of depreciating assets to zero value, rather than to the estimated disposal value of the asset. Any gain on disposal of the asset is assessed as income at the time of disposal through a balancing adjustment. This results in a tax deferral.

B77 Research and development — exemption of refundable tax offset

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	-190	-290	-380	-460	-545	-610	-655
Tax expenditure type:		Exemption, Denial of deduction				2014 TES code:	B79
Estimate Reliability:		Medium — Low
Commencement date:		1 July 2011				Expiry date:
Legislative reference:		Division 355 of the Income Tax Assessment Act 1997

The research and development (R&D) refundable tax offset is available to companies with a turnover of less than $20 million at a rate of 43.5 per cent for the first $100 million of expenditure on eligible R&D activities for income years beginning from 1 July 2014. A refundable tax offset at the prevailing company tax rate applies to the amount of the expenditure that exceeds $100 million. For previous income years, the refundable tax offset rate is 45 per cent for all eligible expenditure.

If a taxpayer’s income tax liability is reduced to zero, the unused refundable tax offset amount can be applied to reduce other tax liabilities. Any residual unused amounts can be refunded as cash to the company.

Companies that claim the R&D refundable tax offset are unable to claim deductions for the R&D expenditure. The absence of these deductions constitutes a negative tax expenditure and explains why the estimates are negative.

B78 Research and development — non-refundable tax offset

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
-	1,070	1,170	1,000	850	850	860	850
Tax expenditure type:		Offset				2014 TES code:	B80
Estimate Reliability:		Low
Commencement date:		2011				Expiry date:
Legislative reference:		Division 355 of the Income Tax Assessment Act 1997

The R&D non-refundable tax offset is available to companies at a rate of 38.5 per cent for the first $100 million of expenditure on eligible R&D activities for income years beginning from 1 July 2014. A non-refundable tax offset at the prevailing company tax rate applies to the amount of the expenditure that exceeds $100 million. For previous income years, the non-refundable tax offset rate is 40 per cent for all eligible expenditure.

The non-refundable tax offset can be carried forward to be applied against future income tax liabilities. If a company’s income tax liability is zero, unused offset amounts cannot be applied to reduce other tax liabilities.

B79 Small business — simplified depreciation rules

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
10	-50	230	-170	-390	1,010	1,010	-500
Tax expenditure type:		Accelerated write-off				2014 TES code:	B81
Estimate Reliability:		Medium — Low
Commencement date:		2007				Expiry date:
Legislative reference:		Subdivision 328-D of the Income Tax Assessment Act 1997

Small business entities with an aggregated annual turnover of less than $2 million are able to access concessional depreciation arrangements for business assets.

Under the concessions, small business entities can immediately write-off (deduct) assets that cost less than a threshold amount. From 1 January 2014 to 7.30pm (AEST) on 12 May 2015 the threshold was $1,000. Between 7.30pm (AEST) on 12 May 2015 and 1 July 2017 the threshold is $20,000. The threshold will return to $1,000 from 1 July 2017.

In addition to the immediate write-off, assets above the threshold are depreciated through simplified pooling arrangements at a rate of 30 per cent per year (15 per cent in the first year). The general small business pool can also be immediately deducted at the end of the income year if its value is less than the immediate write-off threshold (before deducting depreciation for the year).

B80 Small business — simplified trading stock rules

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deferral				2014 TES code:	B82
Estimate Reliability:		Not Applicable				* Category	1+
Commencement date:		2007				Expiry date:
Legislative reference:		Division 328 of the Income Tax Assessment Act 1997

Small businesses with annual turnov
er of less than $2 million may choose to use a simplified trading stock regime. Under this regime, in certain circumstances, changes in the value of trading stock do not have to be accounted for and stocktaking is not required at the end of the income year.

B81 International tax — concessional rate of final withholding tax on certain distributions by Australian managed investment trusts to foreign residents

General public services — General services ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
195	205	330	370	370	370	370	370
Tax expenditure type:		Concessional rate				2014 TES code:	B83
Estimate Reliability:		Low
Commencement date:		1 July 2008				Expiry date:
Legislative reference:		Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 Division 7 of the Taxation Administration Regulations 1976

Note: estimates include tax expenditures B81 and B16

Distributions of Australian source net income (other than dividends, interest and royalties) by Australian managed investment trusts to foreign residents are subject to a final withholding tax. The general rate of 30 per cent is reduced to 7.5 per cent for 1 July 2010 to 30 June 2012, and to 15 per cent from 1 July 2012, for residents of countries specified in the regulations.

B82 Exception to equity interest test for certain related party at call loans

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Deduction				2014 TES code:	B84
Estimate Reliability:		Not Applicable				* Category	2+
Commencement date:		1 July 2005				Expiry date:
Legislative reference:		Division 974 of the Income Tax Assessment Act 1997

Related party at call loans, which would generally give rise to an equity interest, are taken to be debt interests for companies that have an annual turnover of less than $20 million. Therefore, payments on the loan are deductible debt interest whereas they are treated as a non-deductible equity interest under the benchmark.

B83 Forestry managed investment schemes — tax deductibility

Other economic affairs — Other economic affairs, nec ($m)

2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18	2018-19
*	*	*	*	*	*	*	*
Tax expenditure type:		Accelerated write-off				2014 TES code:	B85
Estimate Reliability:		Not Applicable				* Category	1+/-
Commencement date:		1 July 2007				Expiry date:
Legislative reference:		Division 394 of the Income Tax Assessment Act 1997

Investors in forestry managed investment schemes are able to claim immediate upfront deductions for their expenditure on such schemes, provided that, amongst other requirements, at least 70 per cent of the expenditure is directly related to developing forestry.