Proposed changes to the Research and Development Tax Incentive
05 December 2019
The Federal Government has reintroduced draft legislation to amend the Research and Development Tax Incentive, which is intended to retrospectively apply from 1 July 2019. The proposed measures reintroduced in this Bill will amend the available tax offset rates as follows:
Entities with aggregate turnover of less than $20 million
- The corporate tax rate (currently 27.5%) plus a 13.5% incentive component, refundable up to a cap of $4 million (excluding clinical trial costs*).
Entities with aggregate turnover greater than $20 million
- The corporate tax rate, plus a tiered incentive component applied incrementally.
| R&D expenditure as a percentage of total business expenditure |
Incentive component |
| 0-4% |
4.5% |
| 4-9% |
8.5% |
| >9% |
12.5% |
By way of example, a company with $1m in R&D expenditure and $10m of total expenditure will have an intensity rate of 10%. It will be entitled to a 4.5% incentive component on the first $400k of R&D expenditure, 8.5% on the next $500k of R&D expenditure and 12.5% on the last $100k of R&D expenditure. Accordingly, its net total benefit will be $73,000 or 7.3% of R&D expenditure.
Other changes include:
- Increasing the R&D expenditure threshold from $100 million to $150 million
- Adjusting the treatment of feedstock input expenditure and government recoupments through additional assessable income, to claw back the incentive component associated with these aspects of an R&D Tax Incentive claim
- Increasing Innovation and Science Australia’s ability to make binding determinations about its application of the program
- The ATO will publish information on claimants of the incentive and their R&D expenditure for greater transparency.
BDO comment
It is disappointing to see the Government has not followed the advice of the Senate committee in reconsidering the $4 million cap on the refundable component of the tax offset, and the intensity measures applied to non-refundable offsets. By the Government’s own estimates, this will result in $1.8 billion being returned to the Budget, rather than invest in Australian business over the foreseeable forward estimates.
If you would like more information on the proposed changes to the R&D Tax Incentive, please contact a BDO adviser.
Read media release: BDO concerned with Government’s changes to R&D Tax: “little thinking has been done”
*The clinical trial exemption only applies for the purposes of the R&D tax offset if the R&D entity has registered an activity both as an R&D activity and an activity that forms part of a clinical trial and if the R&D activities are registered with the Board of Innovation and Science Australia.