Earlier in the week we provided a budget update that included welcome news about the R&D Tax Incentive scheme. It was announced that an extra $2 billion would be provided in research and development incentives from 1 July 2022.
The government has moved quickly to enact their proposed changes, and the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 has now passed after it was introduced in Parliament on Wednesday. This omnibus budget tax bill contains most of the budget tax measures including changes to the R&D Tax Incentive that were announced in Tuesday’s federal budget.
The current R&D Tax Incentive regime which provides a 43.5% refundable tax offset to companies with an aggregated turnover of less than $20 million and a 38.5% non-refundable tax offset to larger companies will continue to apply to 2019/20 and 2020/21 financial years.
Under the updated regime, for financial years starting after 1 July 2021, the refundable R&D tax offset for small companies will be set at 18.5 percentage points above the claimant’s company tax rate. As the corporate tax rate is set to be reduced to 25% on 1 July 2021, this means that the refundable offset will effectively remain at 43.5%. The government has also scrapped a proposal to cap the amount of refundable R&D tax offset a company can claim.
From 1 July 2021, larger companies with an annual turnover of $20 million or more will face a simplified two-tier intensity measure. based on their R&D intensity as a proportion of total expenses. R&D expenditure between 0 per cent and 2 per cent R&D intensity will receive an offset of 8.5 percentage points above the company tax rate, while anything higher will receive a 16.5 per cent offset.
The government will also increase the R&D expenditure cap from $100 million to $150 million and has flagged improvements to the administration, integrity and transparency of the R&D tax incentive.
In summary, the changes for smaller companies are very welcome and go a long way to addressing many of the concerns around uncertainty in the scheme in recent years. As for the bigger companies, whilst some companies will receive a higher benefit under the new scheme, the intensity measure adds complexity to the claim process and disadvantages Australian businesses that manufacture in Australia as well as those businesses that require large capital investment or that operate on small margins.
Interested in applying for the R&D Tax Incentive? Get in touch here: