Research and Development tax incentives announced to reward innovation

8 October 2020

The Federal Budget 2020/21 handed down this week has highlighted Research and Development (R&D) and innovation support for companies as an important part of the Government’s strategy for economic recovery.

There were some welcome announcements, in the form of revised R&D tax incentive changes. These will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D by:

  • Reducing the last proposed three tiers to a two-tiered approach.
  • Increasing the rates applicable.
  • Deferring the start date of proposed changes.

The changes are proposed to commence from a deferred start date of 1 July 2021.

For small companies with aggregated turnover of less than $20 million, the changes include:

  • The refundable R&D tax offset will be set at 18.5% above the claimant’s company tax rate. On a 25% tax rate in the 2021/22 financial year, this equates to a 43.5% refundable offset rate.
  • The proposed $4 million cap on refunds will not proceed.

For larger companies with aggregated annual turnover of $20 million or more, the changes include:

  • Application of a non-refundable R&D offset rate tied to a company’s incremental R&D intensity*. The R&D rates will be the claimant’s company tax rate plus:
    • A base rate of 8.5% above the claimant’s company tax rate for R&D expenditure between 0% and 2% R&D intensity; and
    • An enhanced rate of 16.5% above the claimant’s company tax rate for R&D expenditure above 2% R&D intensity.
  • The R&D expenditure cap will increase from $100 million to $150 million.

The remaining R&D measures are unchanged from those in the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 currently before the Senate.

For more information on R&D tax incentive changes, talk to your adviser or contact the Findex Tax Advisory team.

For more Federal Budget coverage and news as it comes to hand, visit our Federal Budget Resource Centre.