The Government is implementing reforms to the R&D Tax Incentive program. The proposed changes may support additional high intensity R&D expenditure and improve the program’s effectiveness and integrity.
R&D tax offsets are available to registered R&D entities for a range of expenses and depreciation costs incurred on R&D activities. Currently, there are two R&D offsets available:
- a 43.5 per cent refundable tax offset available to most small R&D entities with turnover of less than $20 million. The refundable offset can be refunded as a cash payment to an R&D entity if the offset exceeds the entity’s income tax liability; and
- a 38.5 per cent non-refundable tax offset available to larger R&D entities with a turnover of $20 million or more. This offset can be used to reduce an R&D entity’s income tax liability for an income year but any remaining offset excess must be carried forward to be applied in future income years.
According to the proposed changes, R&D entities with aggregated turnover of less than $20 million will generally be entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium. The amount of a refund that an R&D entity can receive is capped at $4 million per annum. Offset amounts that relate to expenditure on clinical trials do not count towards the cap and remain refundable.
R&D entities with aggregated turnover of $20 million or more are entitled to an R&D tax offset equal to their corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure.
In addition, the R&D expenditure threshold will be increased from $100 million to $150 million.
The proposed amendments to the law, if passed, will apply retrospectively from the income tax years commencing after 1 July 2019.