Australia: Proposed Overhaul Of The Current R&D Tax Concessions – Small Companies Are Winners But A Lot Of Losers

One of the key initiatives introduced in the 2010 Federal Budget was a proposal to simplify and enhance the Research and Development Tax Concession from the 2011 income year. The aim of the proposal is to boost the Australian economy by providing better tax incentives to reward companies that invest in research and innovation.

However, it is clear that as result of the overhaul, a number of companies will actually be worse off under the proposals. It can be seen from the budget estimates that Treasury is expecting the cost of the R&D concessions to reduce by $855 million over the next three years. The Government has stated that the eligibility criteria will be tightened to ensure that only genuine R&D is supported. Furthermore, the premium concession and international premium will be abolished. Whether the proposed changes will actually boost "genuine" R&D expenditure will depend upon the final form that the legislation takes.

Small Businesses

Businesses with a turnover of under $20 million will gain the most with a 45% refundable tax credit which is equivalent to a 150% tax concession. This will allow companies to receive a tax refund of 0.45 cents for every dollar of R&D spending. The major benefit of the refundable tax credit is that it is available for companies in a tax loss position.

The table below provides a comparison between the current 30% R&D tax offset and the proposed 45% refundable tax credit.

Note: As a transitional measure for the 2010 income year, the R&D tax offset will be available for companies that spend up to $2 million (as opposed to the existing $1 million limit) on R&D expenditure.

Larger Businesses And Foreign Businesses

Businesses with a turnover of more than $20 million will be eligible for a 40% non-refundable tax credit which is equivalent to a 133% tax concession.

Furthermore, in an attempt to encourage multinationals to bring their R&D into Australia, companies that hold intellectual property offshore will also be eligible for the 40% non-refundable tax credit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.