A closer look at R&D Tax Incentive changes in Federal Budget 2018/19
We summarised the R&D Tax Incentive changes in the Federal Budget Tax Brief and now provide further detail and context on the impact on SMEs, Startups and large business.
In the lead up to the Budget there was weeks of speculation about the proposed overhaul of the R&D Tax Incentive program. Concerns that some companies would be excluded from the program have not been realised. The mixed bag of changes, which will take effect from 1 July 2018, aim to:
- improve the integrity of the program through increased enforcement, transparency and guidance;
- continue to provide support, albeit with reduced benefits in some cases, for smaller companies that undertake R&D activities; and
- refocus support for larger companies towards those undertaking higher intensity R&D.
SMEs and startups
For companies with an aggregated turnover below $20 million, the refundable R&D tax offset will now be a premium of 13.5% above the company’s corporate tax rate. The proposed rules will link the rate of the R&D offset to the claimant’s company tax rate, and in effect replace the current 43.5% incentive.
In practice this means that some companies may see a reduction in refundable benefit from 43.5% to 41% of eligible expenditure or a reduction in benefit from 16% to 13.5% depending on the company’s tax position.
Cash refunds from the refundable R&D tax offset will be capped at $4 million, noting that expenditure related to clinical trials is excluded from the cap. Any unrefunded amounts will be carried forward as a non-refundable tax offset. We don’t expect this change to have an impact on the vast majority of SMEs or startups.
Companies with an annual turnover of $20 million or more are currently entitled to a non-refundable tax offset of 38.5% of eligible R&D expenditure. The proposed measures involve the introduction of an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of the company’s total expenditure for the year.
The marginal R&D premium will be the claimant’s company tax rate plus:
- 4 percentage points for R&D expenditure between 0 per cent and 2 per cent R&D intensity;
- 5 percentage points for R&D expenditure above 2 per cent to 5 per cent R&D intensity;
- 9 percentage points for R&D expenditure above 5 per cent to 10 per cent R&D intensity; and
- 5 percentage points for R&D expenditure above 10 per cent R&D.
This will have the greatest impact on companies with low levels of R&D intensity, reducing the potential benefit from 8.5% to as little as 4%. On the flip side, these will be welcome changes for companies with high levels of R&D intensity.
Lastly, the maximum amount of eligible R&D expenditure that can be claimed under the scheme is proposed to increase from $100 million to $150 million per annum.
For more information on the R&D Tax Incentive and how Hanrick Curran can assist your company, please contact your usual Hanrick Curran adviser or call Jamie Towers on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.