Govt puts $4M R&D cap into tax incentive reforms

Govt puts $4M R&D cap into tax incentive reforms

Reforms will add $1.8 billion to the budget over the next four years

Credit: Dreamstime

The Federal Government has tabled its new reforms for the Research and Development Tax Incentive in a move that will cap companies’ tax refunds at $4 million.

The proposed amendments to the incentive outline a number of changes to tax offset rates businesses with heavy R&D operations, which could affect large technology vendors and global systems integrators.

These giants -- or any entity with a turnover higher than $20 million -- will now see gain an R&D tax offset equal to their corporate tax rate plus a “premium” or tier incentive component, applied incrementally.

Previously, larger organisations were simply entitled to a non-refundable offset at a rate of 38.5 per cent. In addition, big entities will see an increase in the incentive’s cap on R&D expenditure raised from $100 to $150 million.

For smaller companies with a turnover of less than $20 million, the reform will see them entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium.

Reforms to R&D tax incentives will add $1.8 billion to the budget over the next four years, and at the same time will add a  regulatory cost for businesses of $26.3 million.

Treasurer Josh Frydenberg said the Government was “committed” to R&D investment and the economic opportunities and jobs it generates. “At the same time we need to make sure that taxpayers’ money is well targeted by encouraging companies to invest a higher proportion of business expenditure on R&D,” he added in a statement. 

The incentive was first introduced in 2011, and was intended to encourage R&D activities that might not otherwise be conducted in Australia.

Work to reform the incentive began in May 2018 when, as Treasurer, Scott Morrison, first introduced the $4 million on cash refunds.

At the time, the Australian Information Industry Association (AIIA) argued the proposals would constrain innovation by discouraging companies from local investment.

Ahead of this year’s election, Labor proposed their own reforms that would encourage more collaboration between businesses and research institutions, claiming they would invest 3 per cent of Australia’s GDP in R&D by 2030.

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Tags R&DreformsMorrisonResearch and Development Tax Incentive


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