RDP 2025-01: Are Investment Tax Breaks Effective? Australian Evidence Appendix A: Policy Episodes

A.1 The GFC investment tax credit

The Australian Government provided a temporary bonus income tax deduction for new investment in tangible depreciating assets undertaken between 13 December 2008 and 31 December 2009.

For small business entities (where turnover was less that $2 million), the tax break was 50 per cent of their investment in an eligible asset undertaken on or before 31 December 2009. For all other taxpayers, there was a 30 per cent deduction for all investments committed to before 30 June 2009 and a 10 per cent deduction for those committed to during the second half of 2009. The tax break could be claimed in the income year that the asset was first used or installed ready for use. The GFC tax break was in addition to any depreciation allowances for the asset in the year of investment and future depreciation deductions. New investment in relation to an asset needed to exceed a certain threshold before qualifying for the tax break. The new investment threshold was $1,000 for small business entities and $10,000 for all other taxpayers.

The investment tax break was announced in the Treasurer's Media Releases No. 141 of 12 December 2008 and No. 013 of 3 February 2009 and as part of the 2009/10 Budget of 12 May 2009. Amendments were passed in Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009, which received Royal Assent on 22 May 2009.

For a pre-policy period over which we assess common trends we take the period from 1 July 2007. This is when the definition of small business was changed to $2 million in turnover. The end of the pre-policy period was 30 June 2009.

A.2 The small business incentive 2012

Small business taxpayers received an increase in the instant asset write-off cost threshold from $1,000 to $6,500 for 2012/13 and later income years. Simplification and consolidation of the small business depreciation pools were also implemented at the same time.

The change in asset threshold from $1,000 to $5,000 was announced on 2 May 2010. On 10 July 2011, the Australian Government announced the small business instant write-off threshold would be further increased to $6,500. The amendments were passed in the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Act 2012, which received Royal Assent on 29 March 2012.

With a change in government, and repeal of the Mineral Resource Rent Tax (MRRT), the threshold was moved back to $1,000. The repeal of the MRRT was announced on 24 October 2013. The repeal of the higher threshold and related spending measures was announced later on 18 July 2014. The change in threshold was effective from 30 September 2014, with the passage of the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014, which received Royal Assent on 5 September 2014.

We take the date of announcement of the repeal of the MRRT as the end date of the policy since the original threshold increase was funded by the MRRT. Businesses would have anticipated the repeal of other spending measures when the repeal of the MRRT was announced.

We define the policy period from 1 July 2012 to 31 December 2013. To look at pre-trends we take the period 1 January 2010 to 30 June 2012, which is the period after the end of the GFC investment incentive.

A.3 The small business incentive 2015

Small business entities (i.e. businesses with a turnover up to $2 million) were given an increased immediate deduction for a depreciating asset costing less than $20,000 from 12 May 2015. The temporary increase applied from 12 May 2015 until 30 June 2017. However, we only consider the policy through to 31 December 2015 to avoid any potential influence from the introduction of the lower corporate tax rate for firms with turnover up to $10 million (which include our control group) in May 2016.

The small business corporate tax rate was cut to 28.5 per cent in 2015 by the Tax Laws Amendment (Small Business Measures No. 1) Bill 2015, which received Royal Assent on 22 June 2015.

A.4 The expanded business incentive 2016

The small business threshold was increased from $2 million to $10 million and the corporate tax rate was cut to 27.5 per cent for businesses with a turnover less than $10 million from 2016/17 onwards. This meant that business with a turnover up to $10 million could access instant write-off provisions for assets costing up to $20,000. With the extension of that provision by 12 months, to 30 June 2018 (Income Tax (Transitional Provisions) Act 1997).

The tax cuts and change in definition of small businesses were announced on 3 May 2016 as part of the 2016/17 Budget and implemented in Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, which received Royal Assent on 19 May 2017.

For identification purposes we take 1 July 2017 as the end date of this policy. After this date, tax cuts (lowering the corporate rate to 27.5 per cent) were implemented for businesses with a turnover of less than $25 million as per the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017.

A.5 The medium-sized business incentive 2019

The instant asset write-off cap increased the maximum amount of allowable expenditure for each asset of $30,000 between 2 April 2019 to 30 June 2020 (although this was overtaken by new provisions that commenced on 11 March 2020 and included businesses with a turnover of up to $50 million).

The corporate tax rate was cut to 27.5 per cent for businesses with a turnover of less than $50 million from 1 July 2018 onwards, in accordance with legislation passed in 2017 (Treasury Laws Amendment (Enterprise Tax Plan) Act 2017).

We define the policy period as 2 April 2019 to 11 March 2020. We define the treatment group as businesses with a turnover of between $10 million and $50 million for 2018/19. We use businesses with a turnover of more than $50 million as the control group.

A.6 The large businesses incentive

The asset cost cap was increased from $30,000 to $150,000 and the turnover threshold was increased from $50 million to $500 million from 12 March 2020 to 30 June 2020. The proposal was announced in March and enacted in Coronavirus Economic Response Package Omnibus Act 2020. This policy was extended by six months to end on 31 December 2020 (announced in June 2020 and passed in Treasury Laws Amendment (2020 Measures No. 3) Act 2020). However, this was overtaken by the expanded COVID-19 temporary full expensing package, which started on 6 October 2020.

We define the policy period as 1 April 2020 to 30 September 2020. We define the treatment group as businesses with a turnover of between $10 million and $50 million for 2018/19. We use businesses with a turnover of more than $50 million as the control group.

A.7 Full expensing measures for very large businesses

Lastly, the instant asset write-off was expanded into temporary full expensing (TFE). Under TFE, businesses with a turnover of less than $5 billion could deduct the full cost of eligible depreciating assets. There was no cap on the value of the asset price. It applied to assets first used or installed between 6 October 2020 and 30 June 2022. The policy was announced on 6 October 2020 and passed in Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020.

We define a policy period of 1 October 2020 to 30 June 2021, the latest observation in our data (the policy expired on 30 June 2023). We define a treatment group of businesses with a turnover between $500 million and $5 billion and use businesses with a turnover between $5 and $6 billion as the control group.