From 29 September 2010 the Government commenced introducing a series of Bills to renew its legislative agenda and amongst them is the legislation to establish the R&D Tax Credit. This means that the existing 125% R&D tax concession and rebate offset, and the 175% premium concessions will be abolished.
The new R&D Tax Credit will have two components, depending on whether the company’s turnover is less than or more than $20 million per annum.
Companies with a group turnover of less than $20 million
Companies with an aggregated turnover of less than $20 million per annum will be entitled to claim the Refundable R&D Tax Credit of 45% (the equivalent to a 150 per cent concession) and there won’t be a cap on how much can be claimed. This means that a company in a tax loss position with an eligible R&D expenditure of $2 million can potentially obtain a cash benefit of $900,000. The companies that are in a tax paying position will have that amount credited against any tax owed.
Companies with a group turnover of more than $20 million
Companies with an aggregated turnover of more than $20 million per annum will be entitled to claim a Non-Refundable R&D Tax Credit of 40% (the equivalent to a 133 per cent concession) with no cap on how much can be claimed. This is a 25% in extra funding on top what is currently available.
In addition to the increased direct financial benefits, there are a number of other benefits of the new program.
- The new R&D Tax Credit will be decoupled from the corporate tax rate, so if the tax rate goes down from 30% to say 28%, the benefit from R&D credit won’t be diminished.
- Claims will be allowed where a company is conducting its R&D activities in Australia, but the intellectual property is held off-shore by a parent company or a subsidiary.
- The in-house software restrictions are going to be relaxed for companies developing new or improved software applications.
- The unlimited AusIndustry review period will cease and will be set to four years.
There are a number of areas where the new credit may pose a disadvantage to companies due to the following proposals.
- Adjustment to the objects clause
- Changing the definition of core R&D and introducing additional complexities
- Augmented feedstock provision
- Revamping of the ‘clawback’ provisions
These changes may have the potential to significantly diminish company’s R&D claim. We will be working together with our clients to ensure that their interests are protected and they are able to navigate through some of the complexities associated with the new R&D Tax Credit.
For further information please contact Saving Point on (03) 9555 3551 or send us an email on