The New R&D
The Federal Government has announced crossbench support for the
new R&D Tax Credit Program. The new R&D Tax Credit Program
will replace the R&D Tax Concession effective from 1 July 2011
and provides eligible companies with a tax offset for expenditure
on eligible R&D activities.
The $1.8 billion R&D Tax Credit is aimed at delivering more funding to innovative firms – including manufacturers, ICT and biotech. The overall policy change is strategically aimed to benefit businesses that innovate (by way of risk) and use R&D as a platform for future growth.
Moore Stephens View
The R&D Tax Credit Program is demonstrating to the SME
sector that there is real Federal Government commitment to increase
genuine R&D in Australia. Globally, Australian companies are
facing increased competition from a resurgent China and other
countries with more lucrative R&D regimes. Now the playing
field has been levelled. The winners are the SME, Venture Capital
and Biotech sectors.
In our view, the 'doom and gloom' talk of a R&D exodus out of Australia as result of the tightening of the definition of R&D has been blown out of proportion. Large corporates look at the big picture, including skills, labour, etc. R&D is just one element.
Further, the R&D Tax Credit Program will not breed a 'chindogu' R&D culture as firms will always acquire new knowledge and for a specific application or use, but will most likely have the opposite effect. (Chindogu is the Japanese word coined for the art of the useless ideas).
Impact to SME Sector
Given SMEs and start-ups are generally the 'hotbed' of
new ideas and creativity, the R&D Tax Credit Program will
foster an innovative culture and as a nation we will benefit from
their R&D activities. This is especially important given in the
current competitive environment as Australia can really only
compete with high value, low volume products and innovation.
In summary, the changes are:
- Companies with a group turnover less than $20 million
Companies will be eligible for a 45% refundable credit (a cash
rebate that is paid even if the company is in a tax loss and cannot
benefit from tax deductions). There is no limit on the amount
of expenditure that can be claimed.
Currently companies with tax losses can only obtain a cash refund if they have a group turnover of $5 million or less and aggregate R&D expenditure of $2 million or less. If they exceed either of these limits they can only benefit by additional income tax deductions which only provide a cash benefit if the company has taxable income.
For example, a group with a turnover of less than $20 million with $1 million of R&D will receive a cash rebate of $450,000 whereas under the current rules the rebate would usually be $375,000.
The Government will introduce quarterly payments for small and medium businesses from 1 January 2014. These firms will get their credit sooner, significantly improving their cash flow and incentive to invest in R&D.
- Companies with a group turnover greater than $20 million
Companies will be eligible for a 40% non-refundable credit
against their tax liability. This is equivalent to a 133% tax
concession (currently the concession is usually 125%).
The existing R&D Tax Concession and Tax Offset (i.e. Cash Rebate) is still available for the 2010/11 year.
The cost of the new R&D Tax Credit Program is intended to be
funded by a tighter definition of eligible R&D activities which
will restrict its availability. Accordingly, we advise all current
R&D claimants to review their systems and processes to ensure
they can identify, track and substantiate all eligible R&D
activities and costings under the new R&D Tax Credit Program to
ensure compliance with the new program and to maximise and retain
any R&D potential.
For current non-claimants of the R&D Tax Concession, we would be pleased to assist with establishing there are any opportunities under the future R&D Tax Credit Program.
There are many other amendments which could affect your business. If you have any questions regarding the R&D incentive please contact Krish Patel (02) 8236 7767 or your Moore Stephens relationship partner.
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