In response to the recommendations in the ‘2016 Review of the R&D Tax incentive’ the government has announced proposed R&D Tax Incentive changes within the 2018-19 Federal Budget released yesterday, 8 May 2018.
The changes take on board some recommendations from ISA’s previous review of the programme, along with some of the government’s own savings and integrity measures.
The R&D Tax Offset rate will change, commencing for years on or after 1 July 2018. For companies claiming the refundable offset with a turnover less than $20 million, the R&D Offset rate will be calculated based on the company’s tax rate plus 13.5%, capped at $4 million.
This represents a cut to the permanent benefit of the R&D Incentive for company’s who have a margin of 16% between the current legislated Refundable R&D Tax Offset rate of 43.5% and company tax rate of 27.5%.
For companies with a turnover greater than $20 million claiming the non-refundable offset, the R&D Offset rate will be calculated based on a progressive scale determined by a company’s ‘R&D Intensity’, with intensity defined as R&D expenditure as a proportion of the total expenditure.
Offset rate for Company R&D Expenditure up to 0-2% Intensity = Tax rate + 4%;
Offset rate for Company R&D Expenditure up to 2-5% Intensity = Tax rate + 6.5%;
Offset rate for Company R&D Expenditure up to 5-10% Intensity = Tax rate + 9%;
Offset rate for Company R&D Expenditure up to 10%+ Intensity = Tax rate + 12.5%.
The current cap on claimable R&D expenditure increased from $100 million to $150 million.
The Government will increase funding to AusIndustry and the ATO to increase compliance activity and seeking to improve the incentive’s integrity. Additional changes and specific details are yet to be announced, which include:
ATO to publicly disclose claimants and the amount of expenditure claimed;
Limits on time extensions to complete R&D Registrations;
Further changes to be announced.
The following proposed changes are not yet law and must first pass through the senate before they are enacted as official changes to the R&D Incentive.
Swanson Reed R&D Tax Consultants help companies to claim the incentive and ensure that they receive the maximum amount they are eligible for. Contact one of our specialist R&D Tax Advisers to find out whether your business qualifies for the R&D tax credit or if you have any further questions. To find out whether your company is eligible for the R&D tax incentive, complete our online R&D eligibility quiz.