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R&D Tax Credits

In the 2009 budget, the government announced that it intended to introduce a new R&D tax credit from 1 July 2010 to replace the existing 125% R&D tax concession and rebate offset, the 175% premium concession and the 175% international concession. This legislation was not considered by the Senate before the recent Federal election and will need to be reintroduced in the new Parliament.

R&D tax credit for companies with turnover less than $20 million

Where a group’s annual turnover is less than $20 million, companies will be eligible for a 45% refundable credit, with no limit on the amount expenditure claimable under this program. This is a significant increase, as the current refundable offset has a group turnover limit of $5 million, and Aggregate R&D Expenditure capped at $1 million.

For the R&D tax credit the turnover limit has been increased to $20 million, and the cap abolished.

The government estimates that 5,500 firms will benefit under these new arrangements.

R&D tax credit for companies with turnover greater than $20 million

Where group turnover is over $20 million, companies will be eligible for a 40% non-refundable credit, equivalent to a 133% tax concession, again one-third higher than the current basic rate of support.

Further, companies conducting R&D in Australia where intellectual property rights are held offshore (as for the current international premium R&D concession) will also able to access this credit.

It is unclear whether this program will allow companies to carry forward the benefits of the credit from year to year in the same way as they presently do with enlarged tax losses from the R&D tax concession.

Transitional provisions

From 1 July 2009, companies that currently claim the R&D tax rebate offset will be able to spend more on a group Aggregate R&D Expenditure basis and remain eligible for the program. This limit was increased from $1 million in expenditure to $2 million with the $5 million group turnover limit remaining.

What are the next steps?

For the moment the existing R&D Tax Concession will continue to apply until it is repealed and replaced by the new Tax Laws Amendment (Research and Development) Bill 2010 and Income Tax Rates Amendment (Research and Development) Bill 2010.

For this to occur the Bills will need to be reintroduced in the new Parliament. There is still a remote possibility that the legislation may be enacted to come into effect retrospectively on 1 July 2010. However, the Coalition and minor parties would be likely to prefer a commencement date of 1 July 2011 of any new program.