Government reintroduces proposed changes to R&D Tax Incentive

The proposed measures reintroduced in this bill will amend the available tax offset rates so that entities with aggregate turnover of less than $20 million will see a 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).

Entities with aggregate turnover greater than $20 million will face the corporate tax rate, plus a tiered incentive component applied incrementally.

By way of an example, published by BDO Australia, a company with $1 million in R&D expenditure and $10 million of total expenditure will have an intensity rate of 10 per cent. It will be entitled to a 4.5 per cent incentive component on the first $400,000 of R&D expenditure, 8.5 per cent on the next $500,000 of R&D expenditure and 12.5 per cent on the last $100,000 of R&D expenditure. Accordingly, its net total benefit will be $73,000 or 7.3 per cent of R&D expenditure.

Other changes 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; increasing Innovation and Science Australia’s ability to make binding determinations about its application of the program; and the ATO will publish information on claimants of the incentive and their R&D expenditure for greater transparency.

Commenting on the proposed changes, BDO said “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”.

“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,” BDO added.