The changes mostly affect larger companies.
The Federal Budget aimed to save $2B through the next four years by changes to the R&D Tax Incentive. Companies with an aggregated turnover under $20M or larger companies whose R&D represents a high (above 13%) proportion of their costs are hardly impacted.
Assuming the measures announced pass through the Senate, the measures are intended to apply for income years commencing on or after 1 July 2018 – e.g. for companies with a 30 June year end, this means changes to the R&D Tax Incentive will first apply for the year ending 30 June 2019.
R&D Tax Incentive
R&D Tax Incentive
Small business – defined as having an aggregated turnover below $20M
• A $4M cap on the cash refund will apply with any excess carried forward as a non-refundable tax offset. This cap does not apply to R&D tax offsets for clinical trials.
• The R&D tax offset rate will be pegged at 13.5 percentage points above the relevant income tax rate, for pre-revenue start-ups and companies with sufficient tax losses.
• The refundable offset will now be a maximum of 41 cents in the dollar (down from 43.5 percent - but still generous by OECD standards).
Large business – companies with an aggregated turnover above $20M are in almost all cases adversely impacted.
• The R&D tax offset rate will be pegged at 13.5 percentage points above the relevant income tax rate, for pre-revenue start-ups and companies with sufficient tax losses.
• The refundable offset will now be a maximum of 41 cents in the dollar (down from 43.5 percent - but still generous by OECD standards).
Large business – companies with an aggregated turnover above $20M are in almost all cases adversely impacted.
• The flat 8.5 percent tax saving on R&D expenditure will be replaced with a progressive scale that increases from 4 to 12.5 percent of R&D expenditure, based on R&D intensity (R&D spend divided by total annual expenditure).
• At a 4 percent rate this makes Australia one of the least generous regimes in the world.
• The R&D annual expenditure cap will increase from $100M to $150M.
The Budget papers indicate an intention to make consequential adjustments to feedstock adjustment and grant clawback rates. This will help manufacturers and those receiving government grants. We assume that the clawback will be limited to the tax saving from claiming R&D.
Integrity
• At a 4 percent rate this makes Australia one of the least generous regimes in the world.
• The R&D annual expenditure cap will increase from $100M to $150M.
The Budget papers indicate an intention to make consequential adjustments to feedstock adjustment and grant clawback rates. This will help manufacturers and those receiving government grants. We assume that the clawback will be limited to the tax saving from claiming R&D.
Integrity
The Australian Taxation Office will have the power to publicly disclose the details of R&D claimants and AusIndustry will have the power to make public rulings through increased guidance materials. Both bodies will be given increased resources to ensure that claims meet the requirements of the taxation law. This means that businesses claiming the R&D tax incentive must focus on real time capture of activities information to enable them to claim and defend their R&D tax incentives 2018entitlements.
Grants
Grants
The Budget also announced the following:
• $1.9B for Australia’s National Research Infrastructure, over 12 years with a focus on new jobs and tools to develop and commercialise first-to-market products and services.
• $20M to establish the Asian Innovation Strategy, including new funding to encourage regional strategic research opportunities.
• $15M for grants to strategic space projects that will result in jobs, over 3 years. Some of these may be located at the new Western Sydney Airport.
• $20M to establish the Asian Innovation Strategy, including new funding to encourage regional strategic research opportunities.
• $15M for grants to strategic space projects that will result in jobs, over 3 years. Some of these may be located at the new Western Sydney Airport.
Paul van Bergen is R&D tax incentives leader based with KPMG.
