Australia’s Investment Incentives: Opportunities in 2023
The Australian Federal Government provides incentives to investors in certain circumstances. These incentives are awarded based on a set of published eligibility criteria that require the investment to provide a significant net economic Australia. Grants and incentives are generally available to foreign companies operating in Australia and subject to Australian corporation tax.
In addition, the governments of Australia’s six states and two territories offer a range of incentives for local and foreign companies. These incentives include limited direct financial assistance, state government tax holidays, reduced rents for industrial sites and support for finding and hiring suitable staff.
The Australian Trade Commission (Austrade) and business.gov.au (under the Department of Industry, Science, Energy and Resources) are the two main government agencies that provide the majority of investment incentives for the Federal Government. Austrade, part of the Department of Foreign Affairs and Trade, provides investment advisory services and provides market intelligence to foreign investors in various sectors.
The Major Projects Promotion Agency (MPFA), administered by the Ministry of Industry, Science, Energy and Resources, provides special status and assistance to major projects. This status includes help identifying government services and streamlining the application process. However, it is worth noting that MPFA only provides information services and is not associated with any grant funding.
In 2019, the Treasury launched the A$540 million Australia Business Growth Fund (BGF). The government invested A$100 million in seed funding, with matching contributions from Australia’s “big four” banks. In addition, Macquarie Group and HSBC each contributed A$20 million. BGF provides long-term equity capital investments of up to A$15 million to established Australian businesses with annual revenues between A$2 million and A$100 million that have demonstrated at least three years of revenue growth and profitability. The Australian Business Growth Fund Act was passed into law in 2020 and the fund began operations that same year.
As of the 2022/23 federal budget, uncertainty remains over three incentives after centre-left Labor wins the May 2022 general election. These incentives include a 20 per cent discount on training and technology investment for small businesses with a turnover of less than $50 million, a 30 per cent digital games tax credit of up to $20 million for local video game developers, and an expanded patent box scheme Companies in agriculture and low-emission technology industries will be allowed a reduced tax rate of 17% on certain profits. These incentives are still subject to parliamentary consideration until the end of May 2022.
The Australian Government’s Commercial Projects Department oversees more than 200 commercial projects. These programs provide grants, tax and duty incentives, industry support and venture capital offerings. Supported by a dedicated portal, the program’s main general assistance programs include Certain Manufacturing Inputs (CIM), Cooperative Research Centers (CRC), Early Stage Venture Capital Limited Partnerships (ESVCLP), Research and Development (R&D) Tax Incentives and Tradex plan.
- The CIM program aims to enhance the competitiveness of Australia’s manufacturing industry. It does this by providing import duty concessions on manufacturing inputs ranging from raw materials to intermediate products, including chemicals, plastic and paper products, and food packaging materials.
- CRCs are research centers that bring together researchers from private industry, universities, CSIRO and other government laboratories. Half of the 44 CRCs are funded by the federal government and the remainder by grants and/or in-kind contributions from private investors.
The ESVCLP scheme imposes no tax on capital gains or other fund income to domestic and foreign investors. However, investment losses are not tax deductible. Fund managers seeking to raise between A$10 million and A$100 million must register with ESVCLP status under the Venture Capital Act 2002 to be able to offer these tax benefits
- The R&D Tax Incentive Scheme encourages investment in R&D with tax credits. The plan applies to activities and expenses for income years beginning in 2011 or later. It is open to all companies incorporated in Australia, resident companies for income purposes, or companies that operate permanently in Australia and reside in countries that have signed double taxation agreements with Australia.
- Tradex plans to waive duty and GST on imported goods that are re-exported within a year. However, the scheme does not apply to goods that are intended to be sold duty-free in Australia, or that would be subject to excise duty if produced in Australia, such as alcohol.
- State and local governments also offer various incentives for local and foreign companies. These incentives include limited direct financial assistance, state tax and fee holidays and preferential rents for industrial land.
In response to the negative impact of the pandemic, the federal government has taken several measures since the beginning of 2020 to support businesses. The JobKeeper Payment, available until March 2021, provides fortnightly installments of $1,500 per employee for businesses severely affected by the pandemic. A 50 per cent guarantee to lenders to support new short-term unsecured loans to small and medium enterprises (SMEs) with a turnover of up to $50 million, also until March 2021. Businesses with a turnover of less than $500 million are allowed to deduct 50% of the cost of installing an eligible asset in addition to existing depreciation deductions. From April 2021 to the end of June 2021, 80 per cent of loans up to $5 million are guaranteed through the SME Recovery Loan Scheme to SMEs with a turnover of up to $250 million and receiving JobKeeper payments. The Federal Government has committed A$343 billion in direct crisis-related economic support by the end of May 2022.
The two industries where the government currently provides the most incentives are the TMT industry and the renewable energy industry.
The Renewable Energy Target initiative aims to ensure that 23.5% of domestic energy consumption comes from renewable sources, which was achieved in 2019. The initiative consists of two parts: the Large-Scale Renewable Energy Target, which incentivizes large-scale renewable energy projects, such as wind farms and commercial solar farms, and the Small Renewable Energy Program, which promotes the use of small renewable energy systems in households. The latter offers solar credits and rebates to homeowners for solar water heating systems and a partial exemption for companies engaged in emissions-intensive trading activities. Both schemes expire in 2030.
The Australian Renewable Energy Agency (ARENA) was established in 2012 as the central agency for renewable energy research, replacing the Australian Center for Renewable Energy. ARENA manages A$2 billion in grant funding, supporting a variety of projects including the Advancing Renewable Energy Programme, the Renewable Hydrogen Deployment Program and the Innovation Fund.
The Carbon Capture and Storage (CCS) Flagship Program involves the allocation of A$125 million in federal government grants for at least one commercial-scale CCS project, with matching contributions expected from relevant state or territory governments and the private sector. Two projects were selected for funding in 2018: the South West Hub in Perth and the CarbonNet proposal in Victoria. A third project, the Otway Geological Storage and Monitoring Demonstration Project, was selected for funding in 2019.
The Emissions Reduction Fund (ERF), also known as the Climate Solutions Fund since 2019, was enacted in 2014 as part of the Direct Action scheme, which replaced the previous Labor government’s carbon tax scheme. The ERF subsidizes emission reduction projects through a reverse auction process, buying carbon reductions from various sources in the form of Australian carbon credits. The Clean Energy Regulator, which manages the ERF, has conducted 14 auctions by the end of May 2022.
Australia’s states and territories compete to attract international investment by offering advice, coordinating projects and waiving or reducing certain taxes and fees. Some also offer direct grants and concessional funding based on the potential economic benefits of the proposed project. Sometimes the federal government creates aid programs called Regional Innovation Funds to focus on specific regions. For example, the Tackling Tough Times Together grant scheme helps drought-affected communities secure grants of up to $10,000, partly funded by private donors; round 23 is open until May 2022.
The Federal Government provides an export-based incentive scheme under the leadership of AusIndustry, the Australian Trade and Investment Commission (Austrade) and the Department of Immigration and Border Protection. Tradex offers upfront exemptions from duty and sales tax on imported goods intended for re-export or as export inputs, provided they are re-exported within one year of entry. Austrade administers the Export Market Development Grant Scheme, providing grants of up to A$770,000 for small and medium-sized businesses that are ready to export or are already exporting and wish to expand their export promotion activities. The Department of Home Affairs, through the Australian Border Force, administers the Tax Refund Facility, which allows companies to obtain refunds of duties and taxes paid on imported goods intended for re-export or used as input for other exports. The Australian Border Force also offers a duty deferment facility, which allows manufacturers to import goods and store them in licensed warehouses without duty liability until they are ready to pay.