What’s the Coalition’s plan for the R&D tax incentive?
With the Liberal-National Coalition Government retaining power in the Federal election, what can we expect from them regarding the Research and Development Tax Incentive (RDTI)?
During the 12-months before the election, the Government tabled a number of changes to the RDTI legislation, including altered R&D tax offset rates, to impact financial years from 1 July 2018. The proposed legislation was rebuffed in the Senate in February 2019 for a number of reasons, that included a transition period that was considered too short. The proposed legislation has now lapsed.
We expect that the re-elected Government will continue to pursue changes but delay their implementation. It seems unlikely that there will be any change to the RDTI for FY19, or perhaps even for FY20.
The RDTI permanent tax benefits for FY19 are as follows:
- A profitable company with turnover of less than $20M is likely to be a base rate entity subject to a 27.5% company tax rate and a 43.5% refundable* R&D tax offset rate, so will receive a permanent benefit (i.e. tax savings) of 43.5% – 27.5% = 16% of their eligible R&D expenditure.**
- A company with turnover between $20M and $50M is also likely to be a base rate entity subject to a 27.5% company tax rate and a 38.5% non-refundable R&D tax offset rate, so will receive a permanent benefit of 11% of their eligible R&D expenditure.**
- A company with turnover greater than $50M cannot be a base rate entity, and will therefore be subject to a 30% company tax rate and a 38.5% non-refundable R&D tax offset rate, so will receive a permanent benefit of 8.5% of their eligible R&D expenditure.**
* If unprofitable, the company would be entitled to a cash refund of up to 43.5% of their eligible R&D expenditure.
** Excluding feedstock expenditure subject to a feedstock adjustment.
In scenarios 1 and 3 above, the permanent benefit rate for FY19 is unchanged from FY18. Interestingly, in scenario 2, if the company has been in this turnover range for FY18 and FY19, the permanent benefit for FY19 is around 30% greater than for FY18, for the same eligible R&D expenditure. This is because the base rate entity aggregated turnover threshold increased from $25M to $50M from 1 July 2018.
With extensive experience across the innovation ecosystem, the specialists in the RnD360 Advisory Group help companies to access government incentives with confidence. To learn more about our distinctive commitment to collaboration, transparency and efficiency, please contact me at firstname.lastname@example.org