The Government has announced changes to the R&D tax incentive that will reverse many of the previous R&D reform measures introduced during the 2018-19 Budget and defer the start date to 1 July 2021.
For companies with an aggregated turnover of less than $20 million, the incentive will remain as a refundable tax offset and will provide such companies with a benefit of 18.5% above the applicable company tax rate for eligible R&D expenditure. This compares favourably to the benefit of 13.5% as per the original announcement. Further, the previously proposed $4 million annual cap on the amount of the cash refund pursuant to the refundable tax offset will be scrapped.
For companies with aggregated annual turnover of $20 million or more, the incentive will still be tied to the claimant’s “R&D intensity” (a measure of the company’s annual R&D expenditure as a proportion of its total annual expenditure). However, the number of intensity tiers will be reduced from three to two, with a corresponding increase in the non-refundable R&D tax offset rates. The additional R&D benefit will either be 8.5% or 16.5% above the applicable company tax rate, with the higher benefit being available where the company’s R&D intensity level exceeds 2%. The previously announced increase to the expenditure cap (up from $100 million to $150 million per annum) remains unchanged.
In conjunction with the bolstered R&D funding, the Government will also provide an additional $459 million of funding to the CSIRO and $1 billion to universities to ensure that they can continue with their essential research activities. Given that the CSIRO and universities often collaborate with R&D claimants on R&D activities, the additional funding should lead to greater innovation and collaboration opportunities for these businesses.
Pitcher Partners has made several submissions to the Senate opposing the previous R&D changes and we welcome the proposed Budget changes seeking to reverse many of the decisions that would have reduced the effectiveness of the R&D regime in Australia. Pitcher Partners will continue to advocate for R&D provisions that are competitive from an OECD perspective to ensure that research remains in Australia and can assist in fostering innovation and future innovative industries in Australia.