Government Reintroduces 1.5% cut to R&D Tax Incentive

May 28th, 2015

Tax and Superannuation Laws Amendment (2015 Measures No.3) Bill 2015 that proposes to reduce the R&D Tax Offset rates by 1.5% passed the House of Representatives and is now being considered by the senate.

Click here to view the Tax and Superannuation Laws Amendment (2015 Measure No. 3) Bill 2015

The Bill is a reintroduction of previous legislation stalled in the senate which also proposed a uniform reduction of 1.5%.

The basis for the previously proposed reduction of the R&D Tax Offset rate was understandable given that there was due to be a uniform drop in the company tax rate to 28.5%. The rationale for this was also reflected in last year’s budgetary material which stated the Government will preserve the relative value of the of the Research and Development Tax Incentive by reducing the rates”.

There is a major issue with the new proposed cut to the R&D Tax Incentive since:

  • The legislation from last year’s budget was introduced on the basis that there would be a uniform reduction in the corporate rate to 28.5%. The corporate tax rate reduction is now only proposed to apply to very small companies with turnover less than $2M. This means companies with turnover greater than $2M will be subject to a drop in the value of their R&D claims;
  • The Reduction in the R&D Tax Rate is due to apply for FY15, whereas the drop in company tax rate for very small companies is due to apply for FY16 (ie one year early). This again contradicts the original rationale for the reduction in the R&D Tax Offset which pledged to “preserve the relative value” of the R&D Tax Incentive.

Outlined below is a summary of the proposed effect of the change:

Currently Year Ended 30 June 2014:

Refundable Offset
(Turnover <$20M)
Non-Refundable Offset
(Turnover >$20M)
R&D Tax Offset Rate 45% 40%
Corporate Tax Rate 30% 30%
Permanent R&D Tax Benefit
(R&D Tax Offset – Tax Rate)
15% 10%
Refundable / Non-Refundable Refundable Non-Refundable
Cash Refund when in Tax Loss 45% Nil – Offset Carried Forward

Proposed Change From 1 July 2014 for FY15:

Refundable Offset
(Turnover <$20M)
Non-Refundable Offset
(Turnover >$20M)
R&D Tax Offset Rate 43.5% 38.5%
Corporate Tax Rate 30% 30%
Permanent R&D Tax Benefit
(R&D Tax Offset – Tax Rate)
13.5% 8.5%
Refundable / Non-Refundable Refundable Non-Refundable
Cash Refund when in Tax Loss 43.5% Nil – Offset Carried Forward

Proposed Change From 1 July 2015 for FY16:

Refundable Offset
(Turnover less than $2M)
Refundable Offset
(Turnover between $2-20M)
Non-Refundable Offset
(Turnover >$20M)
R&D Tax Offset Rate 43.5% 43.5% 38.5%
Corporate Tax Rate 28.5% 30% 30%
Permanent R&D Tax Benefit
(R&D Tax Offset – Tax Rate)
15% 13.5% 8.5%
Refundable / Non-Refundable Refundable Refundable Non-Refundable
Cash Refund when in Tax Loss 43.5% 43.5% Nil – Offset Carried Forward

For more information please contact us or call 1800 792 676.

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