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Federal Budget 2020-21: Research and development

Federal Budget 2020-21: Research and development

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.

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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.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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