By Alan Baghdasarayan | Senior Manager, R&D Services
For months leading up to Scott Morrison’s third Budget, there has been plenty of speculation regarding the R&D Tax Incentive. This has largely been due to the Australia 2030: Prosperity Through Innovation report which laid out a plan for Australia to thrive in the global innovation race, as well as the increased media coverage associated with the Australian Tax Office (ATO) clamping down on the misuse of the R&D Tax Incentive.
With the 2018 Budget being handed down last night, we have analysed the impact that this will have on R&D Tax Incentive claims and the enforcement of the program across the country.
Please note, the proposed changes to the R&D Tax Incentive are set to take place for income years starting on or after 1 July 2018.
Here are the four key takeaways:
1. Maximum cash refund capped at $4 million per year
Companies that are eligible to claim the refundable R&D tax offset will have its cash refund capped at $4 million per year, with any additional amounts being carried forward to future income years. However, the Budget appears to provide a concession with an uncapped R&D refund for expenditure related to clinical trials.
2. Proposed refundable R&D tax offset rate
Currently, companies with less than $20 million of aggregated turnover are eligible for the 43.5% refundable tax offset. The Budget proposes to change the refundable tax offset rate to effectively peg it at 13.5% above the entity’s corporate tax rate. This will impact companies that have a corporate tax rate of less than 30%. For example, companies that have a corporate tax rate of 27.5% will receive a refundable tax offset of 41%, i.e. 2.5% less than what they currently receive.
3. R&D intensity percentage
Currently, companies with an aggregated turnover of greater than $20 million are entitled to claim the 38.5% non-refundable R&D tax offset. The Budget has proposed four levels to the non-refundable tax offset based on an R&D intensity percentage and the entity’s corporate tax rate. This includes:
- 40% or 42.5% offset if more than 10% of total expenditure relates to R&D
- 36.5% or 39% offset if the R&D intensity percentage is between 5% to 10%
- 34% or 36.5% offset if the R&D intensity percentage is between 2% to 5%
- 31.5% or 34% offset if the R&D intensity percentage is between 0% and 2%
4. Raising the threshold
Currently, there is a $100m limit on R&D expenditure that can be claimed at the allotted R&D tax offset rate. This is set to rise to $150m per entity per financial year.
If you think that the 2018-19 Budget will impact your R&D Tax Incentive claim, then please give us a call on 02 8999 1199.