A new bill has been introduced into parliament recently which is concessionary.
The Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 has been introduced into parliament to provide companies and listed widely held trusts with better access to previous year tax losses and to provide taxpayers with the choice to self-assess the effective life of certain intangible depreciating assets.
Similar business test
The Bill amends ITAA 1997 and ITAA 1936 to supplement the same business test with a more flexible similar business test. A company satisfies the similar business test if its current business is a similar business to its former business. The similar business test also applies to listed widely held trusts.
Generally, a company satisfies the similar business test if the business it carries on throughout the income year when it wants to use a loss is similar to the business it carried on at the time immediately before the change of ownership or control that caused the company to fail the continuity of ownership test.
As with the same business test, the focus of the similar business test is on the identity of the business. It is not sufficient for the current business to be of a similar kind or type to the former business. For example, it is not enough to say that the former business was in the hospitality industry and the current business is in the hospitality industry. Instead, the test looks at all of the commercial operations and activities of the former business and compares them with all the commercial operations and activities of the current business to work out if the businesses are similar.
In working out whether the current business is similar to the former business, regard must be had to the following four factors, which are not exhaustive:
- 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 commercialisation of assets, products, processes, services, or marketing or organisational methods, of the former business.
The amendments apply to income years starting on or after 1 July 2015.
Intangible asset depreciation
The Bill also allows a taxpayer to choose to self-assess the effective life of intangible depreciating assets listed in the table in s 40-95(7) of ITAA 1997 rather than using the statutory effective life specified in the table. The choice can be made in relation to intangible assets the taxpayer starts to hold on or after 1 July 2016.
The intangible assets to which this choice applies are:
• a standard patent
• an innovation patent
• a petty patent
• a registered design
• a copyright (except copyright in film)
• a licence (except one relating to a copyright or in-house software)
• a licence relating to a copyright (except copyright in a film)
• in-house software
• a spectrum licence
• a datacasting transmitter licence, and
• a telecommunications site access right.
The effective life is used to calculate the decline in value of the intangible asset.
The new law also allows the taxpayer to recalculate the effective life in later income years if the effective life the taxpayer has been using is no longer accurate because of changed circumstances relating to the nature of the asset’s use.
If the cost of the asset increases by at least 10% in a later income year the taxpayer must recalculate the effective life of the asset.
The amendments apply to certain intangible depreciating assets that start to be held on or after 1 July 2016.
If you would like to find out more about how this will affect your business, contact Andrew Lam here.