Parliament has passed the Tax Laws Amendment (Research and
Development) Bill 2010 and the Income Tax Rates Amendment
(Research and Development) Bill 2010. The new R&D
Tax Credit Program will replace the R&D Tax Concession
effective from 1 July 2011. The new R&D regime provides a more
generous incentive but is limited by tighter definitions of
Moore Stephens will be running information sessions on the new
R&D incentive in Sydney on 26 October 2011 and in Melbourne on
10 October 2011.
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.
In summary, the changes are:
Companies with a group turnover less than $20
The base rate has been increased with no limit or threshold on
R&D expenditure. 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
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
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
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
The base rate has been increased. 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
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 in some sectors.
For instance, the definition of 'core' and
'supporting' R&D activities will be narrowed, with a
greater emphasis on experimentation and the introduction of a
dominant purpose test for certain supporting activities. A
new feedstock regime operates to reduce claims that generate
revenue (eg the manufacture of goods).
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 your Moore Stephens Tax Partner.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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