Article by Bernard O'Shea, David Stavropoulos and Anna
Changes to the research and development tax incentive system
will see small companies receive a tax refund of 45% of their R
& D spending when they file their tax return.
What incentives apply now?
Broadly speaking, Australian companies that incur research and
development expenditure may be eligible for an accelerated
deduction of up to 125% of the expenditure, provided a minimum
expenditure threshold of $20,000 is met. Further, companies that
have increased their R & D expenditure above their average R
& D expenditure for the past 3 years may be eligible for an
additional 50% deduction of the excess. Some companies may also
choose to obtain a refundable tax offset instead of the accelerated
deductions, provided additional criteria are met, one of which is a
cap of $1 million on R & D expenditure.
What will be new?
The Government has announced a plan to replace the current R
& D tax incentive system with a new tax credit system. The
change is to commence in the 2010-2011 tax year. A refundable tax
credit equal to 45% of expenditure on R & D will be available
to companies with an annual turnover of less than $20 million. For
companies which exceed the $20 million turnover threshold a tax
credit equal to 40% of expenditure on R & D will be available,
but it will not be refundable. The 40% tax credit will also apply
to companies undertaking R&D in Australia where the
intellectual property is held offshore.
The Government argues that a tax credit, available once a tax
return is filed for the relevant year, is a better incentive than
an accelerated deduction. The Rudd Government also points to the
complexity of the current system, stating that the complexity leads
to uncertainty about whether concessions may be available, acting
as a further disincentive to invest in R & D.
A feature of the scheme is that small companies (presumably
referring to companies under the $20 million turnover threshold)
will be able to access the refundable credit even if they are
experiencing tax losses, with no limit on the level of R&D
expenditure they undertake. The Government intends this feature to
provide a boost to start-up companies in areas such as
biotechnology and information and communication technology.
The Government has announced a tightening of access to the R
& D tax incentives so that only genuine R & D is supported.
The savings from the tightening of the eligibility criteria are
intended to fund improvements to the system. Exactly what the new
eligibility criteria will be is not known.
As an interim measure, for 2009-2010 tax year the Government
will allow access to the refundable tax offset for R & D
expenditure of up to $2 million, instead of the current $1 million
What are the uncertainties?
As stated above, legislation to implement the reforms is not yet
drafted. In addition, as with all budget announcements, the planned
R & D reforms must make it through both houses of Parliament
before coming into effect, and the Government currently does not
have a majority in the Senate.
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.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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