As always with a government based scheme, we make it our business to keep an eye on Canberra. In the last budget some savings measures related to the R&D Tax Incentive were introduced.
The first measure put forward was a proposal to eliminate Australian companies with a $20billion or greater turnover from accessing the R&D Tax Incentive. This would only have affected a handful of giant companies from accessing the benefit.
The second, more relevant proposal was to reduce the R&D Tax Incentive benefit by 1.5%. This would have reduced the benefit from 45% to 43.5% for entities claiming the refundable tax credit and 40% to 38.5% for entities claiming the non refundable tax credit.
The aim for the government, besides saving money was to maintain the same level of benefit when they proposed to reduce the company tax rate from 30% to 28.5%.
Our opposition to this change of the scheme was twofold. First of all, the company tax reduction is proposed to be part of the next budget and would be introduced at the earliest in 2015/16, while they were proposing to reduce the R&D benefit in 2014/15. This would mean at least a one year reduction in the net benefit.
The second issue is that the proposed company tax cut may never eventuate. Many times company tax cuts have been flaunted around by one party or another and then shelved. If the reduction was to be passed and the company tax cut was not passed, it would represent a permanent reduction in the benefit for doing R&D.
The good news
Fortunately amendments to remove this proposed cut to the benefit were made and supported by the opposition, as well as the greens. The government has now consequently dropped the 1.5% R&D cut from the bill. A deal was also reached related to the exclusion of large claimants with a turnover of over $20billion. This will be replaced with a cap of $100million in R&D Expenditure being claimed.
Of course if you get near that cap, you’re probably already doing quite well out of the scheme. In this case it is a sensible compromise to allow larger companies to claim but to limit the benefit so that smaller companies can obtain a greater share of the benefit. We’re all for keeping our Aussie startup ecosystem alive and kicking. Innovation is a beautiful thing!
In the coming months we won’t be letting Canberra escape from under the microscope. As more detail comes to light in the lead up to the budget, we’ll be keeping an eye on any developments in this space that could impact your future claims.