Unfortunately the aim to save $2.4B over 4 years has complicated the Research and Development Tax Incentive Scheme (R&DTI) for companies with a turnover over $20M & reduced the benefits for the majority of claimants.
Nonetheless the scheme still provides an important source of encouragement for companies undertaking R&D activities. The key changes are outlined below & apply from 1 July 2018. More details can be found at: https://budget.gov.au/2018-19/content/factsheets/6-tax-integrity.html
Importantly the proposed ‘lifetime’ cap was not introduced.
Companies with a turnover below $20M:
- The refundable R&D tax offset will be set at a premium of 13.5% above the company’s tax rate. This results in a refundable offset of 41% for 2018/19 (i.e. tax rate of 27.5% + 13.5%), which is less than the current rate of 43.5% for 2017/18.
- The refundable offset amount will be capped at $4M. Amounts in excess of the cap will be non-refundable tax offsets reducing tax payable when the company is profitable, thus they can be carried forward into future years if not used in the current year.
- Clinical trials will be excluded from the $4M cap.
Companies with a turnover over $20M:
- The non-refundable tax offset (reducing tax payable) will be linked to the incremental “R&D intensity” expenditure as a proportion of total expenditure for the year. The non-refundable tax offset will be based on the company’s tax rate (see Tax Rates below) and the additional component(s) below:
- 4% for R&D expenditure between 0% to 2% of R&D intensity
- 6.5% for R&D expenditure between 2% to 5% of R&D intensity
- 9% for R&D expenditure between 5% to 10% of R&D intensity
- 12.5% for R&D expenditure above 10% of R&D intensity
Compliance activities & Transparency:
- The government has expressed concerns in recent years that many R&D claims are excessive and include normal business activities rather than R&D & experiments for the purpose of generating new knowledge. Additional resources will be provided to the Tax Office and AusIndustry to increase guidance and compliance activities. Accurate record keeping is vitally important.
- To improve public accountability the government intends to publish company names & the amounts of R&D expenditure they have claimed.
Tax rates & other R&D related expenditure items:
- A company tax rate of 27.5% instead of 30% will apply for:
- 1 July 2016 to 30 June 2017 (2016/17) for entities with a turnover below $10M
- 1 July 2017 to 30 June 2018 (2017/18) for entities with a turnover below $25M
- 1 July 2018 to 30 June 2019 (2018/19) for entities with a turnover below $50M
- The instant asset write-off scheme for expenditure up to $20k has been extended to 30 June 2019 & applies to entities with a turnover below $10M.
- The maximum R&D expenditure threshold that can be claimed will increase from $100M to $150M per annum.
As always feel free to contact the team here at Paris Financial if you have any queries at all.
Ken Burk, Partner, Paris Financial