Good News Flash – Proposed reduction to R&D offset rate rejected by Senate

March 4th, 2015

At the announcement of the May 2014 budget, the Federal Government proposed to decrease the refundable and non-refundable R&D tax offsets by 1.5% for FY15. The reduction in the R&D tax offset rates was proposed to commence one year prior to the 1.5% reduction in corporate rate for FY16.

Had the R&D Tax Offset rates reduced one year prior to the corporate tax rate as proposed, the permanent effective benefit of the R&D Tax Incentive would have dropped in FY15, then been restored in FY16 with the corresponding drop in corporate tax rate.

An Officer of the Parliament has recently disclosed that the 45% R&D Tax Incentive introduced by the previous Government will not be reduced by 1.5 percent as foreshadowed in the May 2014 Hockey Budget. The Senate has recently removed the amendment from the “Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014” and the House of Representatives has also agreed to its removal.

Swanson Reed is happy with the timing misalignment and had been lobbying for its implementation since the budget.

If the company tax rate does indeed drop in FY16, it’s likely that the R&D Tax Offset rates will have a corresponding reduction to maintain the permanent tax benefit of the R&D Incentive.