The Research and Development Tax Incentive is intended to retrospectively apply from 1 July 2019 with the proposed measures reintroduced set to amend the available tax offset rates.
For entities with aggregate turnover of less than $20 million, this will see the corporate corporate tax rate (currently 27.5 per cent) plus a 13.5 per cent incentive component, refundable up to a cap of $4 million (excluding clinical trial costs).
Meanwhile, for entities with aggregate turnover greater than $20 million, this will see the corporate tax rate, plus a tiered incentive component, applied incrementally.
“By way of example, a company with $1 million in R&D expenditure and $10 million of total expenditure will have an intensity rate of 10 per cent,” the government noted.
“It will be entitled to a 4.5 per cent incentive component on the first $400k of R&D expenditure, 8.5 per cent on the next $500k of R&D expenditure and 12.5 per cent on the last $100k of R&D expenditure. Accordingly, its net total benefit will be $73,000 or 7.3 per cent of R&D expenditure.”
Other changes noted by the government include: increasing the R&D expenditure threshold from $100 million to $150 million; adjusting the treatment of feedstock input expenditure and government recoupments through additional assessable income, to claw back the incentive component associated with these aspects of an R&D Tax Incentive claim; and increasing Innovation and Science Australia’s ability to make binding determinations about its application of the program.
“It is disappointing to see the government has not followed the advice of the Senate committee in reconsidering the $4 million cap on the refundable component of the tax offset, and the intensity measures applied to non-refundable offsets,” BDO said in response to the proposed changes.
“By the government’s own estimates, this will result in $1.8 billion being returned to the budget, rather than invest in Australian business over the foreseeable forward estimates.”