Omnibus Bill - Reduction in R&D Tax Offset Rate

September 19th, 2016

The Omnibus Bill passed both houses of parliament last week and included $6.5 billion of savings measures.

Included within these measures was a uniform 1.5% reduction in the R&D Tax Offset rates applying for income years starting on or after 1 July 2016.

Whilst returning the budget to surplus is an important task for the government, this reduction is disappointing as the R&D Tax Incentive is the primary mechanism for inducing corporate investment in R&D Activity.

The stability of the R&D Tax Incentive is of critical importance for providing companies with confidence to invest in R&D Activity.

Budget Breakdown
Outlined below is a summary of the before and after impact of the change, taking into account both:

  • The 1.5% reduction in R&D Tax Offset Rates legislated in the Omnibus Bill;
  • The recently legislated reduction in company tax rates for entities with turnover Less than $10M;

Previous Rates for FY16 Year:

Turnover Threshold Less than $2M Between $2M and $20M Greater than $20M
R&D Tax Offset Rate 45% 45% 40%
Corporate Tax Rate 28.5% 30% 30%
Permanent Benefit
(R&D Tax Offset Rate less Tax Rate)
16.5% 15% 10%
Offset Type Refundable Refundable Non-refundable
Cash Refund when in Tax Loss 45% 45% Nil – Offset carried forward

Legislated Reduction in R&D Offset Rates and Company Tax Rates for FY17 Year:

Turnover Threshold Less than $10M Between $10M and $20M Greater than $20M
R&D Tax Offset Rate 43.5% 43.5% 38.5%
Corporate Tax Rate 27.5% 30% 30%
Permanent Benefit
(R&D Tax Offset Rate less Tax Rate)
16% 13.5% 8.5%
Offset Type Refundable Refundable Non-refundable
Cash Refund when in Tax Loss 43.5% 43.5% Nil – Offset carried forward

 


If  you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today. 

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