Research and Development Tax Incentive

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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/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Better-targeting-the-Research-and-Development-Tax-Incentive/

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

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