2016/17 Federal Budget – When No News Is Actually Quite Good News

May 4, 2016 Kris Gale

Last night’s Federal Budget has little risk of being remembered as an innovation budget. In fact, innovation only got a run in the context of confirming a series of measures previously announced by the Prime Minister in last year’s National Innovation & Science Agenda.

However, the welcome knock-on effect of the announcement of a Ten Year Enterprise Tax Plan (the Plan) is that there will be an immediate improvement in the value of the R&D Tax Incentive (the Incentive) from 1 July 2016 for companies with a turnover of less than $10 million. The Plan provides a 2.5% reduction in the corporate tax rate to 27.5% for these businesses effective from 1 July 2016, assuming the legislation passes. This means that companies claiming the 45% Refundable R&D Tax Offset will receive a permanent difference of 17.5% in comparison to the current 15% (16.5% for companies turning over less than $2 million who received a 1.5% company tax rate cut in the 2015/16 year).

The Plan goes on to propose that the turnover threshold to access the reduced tax rate will be raised incrementally until 2023/24, before the corporate tax rate is reduced to 25% for all businesses at the end of 2026/27. If the R&D offset rates remain fixed at 45% and 40%, the permanent difference associated with the Incentive will ultimately rise for all claimants.

Our last MJA Update reported on the lapsing of the aging Bill that sought to introduce an across-the-board offset rate cut of 1.5%, so the rise in the value of the Incentive for companies with a turnover less than $10 million will be immediate. However, it needs to be remembered that the Incentive is currently under review. The ‘Three Fs’ review has dropped out of public sight in recent weeks but will return to prominence the other side of the expected Federal election. No doubt, the rates of R&D Tax Offset will be up for vigorous debate at that time.

So there is more news to come. Whether it will be good news, certainly remains to be seen.

Should you wish to discuss this matter further, please do not hesitate to contact
Kris Gale on 0411 171 596 or email kris.gale@mjassociates.com.au