Research and Development Tax Incentive
As per the 2020-21 Federal Budget announcement, the Government has dedicated an additional $2 billion to the R&D Tax Incentive program to help stimulate investment in R&D activity by Australian Businesses.
This is a positive step forward by the Government in relation to R&D and is in stark contrast to the original bill introduced in 2019. The original R&D amendments proposed in 2019 were designed to reduce R&D investment and make the process more complicated.
The main changes to the Research and Development Tax Incentive which came into effect from 1 July 2021 are as follows:
Companies with aggregate turnover > $20 million (Large Companies)
- The R&D tax offset rate will be based on two tiers; the tiers will be calculated based on a company’s R&D expenditure as a proportion of its total expenditure:
- Companies spending between 0% – 2% of their total expenditure on R&D activities will be entitled to claim the R&D Tax Incentive at 8.5% above their corporate tax rate.
- Companies spending greater than 2% of their total expenditure on R&D activities will be entitled to claim the R&D Tax Incentive at 16.5% above their corporate tax rate.
- The annual cap on eligible R&D expenditure will increase from $100 million to $150 million
Companies with aggregate turnover < $20 million (Small Companies)
- The refundable R&D offset has been fixed at 18.5% above the claimant’s corporate tax rate.
- There will be no cap on the Refundable R&D Tax Offset a company can claim (note: there was a proposed cap of $4M included in the original legislation)
A comparison of the new R&D tax offset rates to the previous two years is shown below.
Aggregated Turnover <$20m | |||
Financial Years | 2019/20 Year | 2020/21 Year | 2021/22 Year |
Offset Rate | 43.5% | 43.5% | 18.5% |
Company Tax Rate | 27.50% | 26% | N/A – R&D offset is a fixed rate above corporate tax rate |
Net Benefit | 16% | 17.5% | 18.5% |
Aggregated Turnover >$20m & <$50M |
| |||
Financial Years | 2019/20 Year | 2020/21 Year | 2021/22 Year | |
R&D Tiers | 0% to 2% | > 2% | ||
Offset Rate | 38.5% | 38.5% | 8.5% | 16.5% |
Company Tax Rate | 27.5% | 26% | N/A – R&D offset is a fixed rate above corporate tax rate | |
Net Benefit | 11% | 12.5% | 8.5% | 16.5% |
Aggregated Turnover >$50M |
| |||
Financial Years | 2019/20 Year | 2020/21 Year | 2021/22 Year | |
R&D Tiers | 0% to 2% | > 2% | ||
Offset Rate | 38.5% | 38.5% | 8.5% | 16.5% |
Company Tax Rate | 30% | 30% | N/A – R&D offset is a fixed rate above corporate tax rate | |
Net Benefit | 8.5% | 8.5% | 8.5% | 16.5% |
As shown in the tables above, those large companies (>$50M turnover) spending greater than 2% of their total expenditure on R&D activities will receive a 8% increase in the amount of the R&D tax offset they receive when compared to last year.
Small companies will also receive a 1% increase in the amount of the R&D tax offset they receive.
Unfortunately, for those companies whose turnover is between $20M – $50M, they will either be better or worse off depending on how much of their expenditure relates to R&D activities. Companies that spend less than 2% on R&D activities will be 4% worse off compared to last year whereas companies that spend more than 2% on R&D activities will be 4% better off compared to last year.
Whilst not every business will be a winner from these changes, overall it shows that the Australian Government is committed to supporting Australian Businesses with their R&D efforts. The changes provide greater motivation for large and small companies to be innovative and greater rewards for large companies that commit a greater proportion of their business expenditure towards R&D activities.
If you require any guidance and assistance in claiming the R&D Tax Incentive, please do not hesitate to contact your accountant at Hall Chadwick QLD.
Useful links:
For more information about the Research and Development Tax Incentive program, refer to:
ATO
https://www.ato.gov.au/Business/Research-and-development-tax-incentive/
Federal Budget 2020-2021
Page 19, https://archive.budget.gov.au/2020-21/bp2/download/bp2_complete.pdf
