Research and Development (R&D) Tax Incentives - what do the 1 July Changes mean for you?

01 July 2021

With new Research and Development (R&D) Tax Incentive measures taking effect this week, BDO Australia has looked at their potential impact on businesses.

BDO’s R&D Tax Partner, Nicola Purser said: “The changes bring confidence that the Government is committed to supporting R&D effort in Australia to assist with our economic recovery.”

The three key areas of changes are:

  1. Tax offset rates are now fixed above the company tax rate:
    The tax offset rates are now fixed at 18.5% above the company tax rate for companies with an aggregated turnover of below $20 million, and 8.5% above the company tax rate for companies with an aggregated turnover over $20 million. 
    “Whilst these rates provide more certainty of the net benefit to companies in an environment of changing company tax rates, the base net benefit for companies with a turnover of between $20 million and $50 million has decreased from 11% to 8.5% and the cash return to small businesses would decrease if company tax rates were to fall below 25%,” Nicola said.
  2. New incentives to encourage more spending:
    “On the positive side, a new intensity test has been introduced for companies that have a turnover of over $20 million, allowing them to access a benefit of up to 16.5% on eligible R&D spend. However, the intensity mechanism disadvantages companies with high cost of goods sold, such as those in manufacturing and agriculture which seems counter-intuitive when the Government has recognised the urgent need for supply chain resilience.
  3. R&D expenditure threshold increase from $100 million to $150 million to annum:
    “This will mean that some of Australia’s largest companies will also benefit by being able to attract the incentive for $150m of R&D expenditure, up from $100m.

“A drawback is that AusIndustry has changed its application process, which could increase the cost of compliance with the program.

“It’s positive that the Government’s response to the pandemic has been to provide innovative Australian companies with an incentive to increase their investment in creating new technology through encouraging investment in increased R&D activity.”