Support from the Coalition for the R&D Tax Incentive
On Tuesday evening the 2020-2021 Federal budget introduced a series of measures to “create jobs, rebuild our economy and secure Australia’s future.” The budget outlined enhancements to the R&D tax incentive to encourage ongoing investment in innovation and to help reduce the economic impacts of the COVID-19 pandemic.
For small companies, those with aggregated annual turnover of less than $20 million, the refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate, and the proposed $4 million cap on annual cash refunds will not proceed.
For larger companies, those with aggregated annual turnover of $20 million or more, the Government will introduce a more generous 2-tiered R&D premium that ties the rates of the non-refundable tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year.
The marginal R&D premium will be the claimants company tax rate plus:
|Tier||R&D intensity range||Intensity premium|
|1||R&D expenditure representing up to and including 2 per cent of total company expenses||8.5%|
|2||R&D expenditure representing greater than 2 per cent of total company expenses||16.5%|
The proposed changes will apply to income years starting on or after 1 July 2021, meaning that claims for accounting periods ending June 2020 and June 2021 will remain unaffected.
These budget measures represent a change in tack from the Liberal-National Coalition Government, which had previously proposed to retrospectively apply changes to the R&D Tax incentive that would amount to a $1.8 billion cut. These new changes will come as a welcome relief to companies that would have otherwise been adversely affected by the proposed changes.