R&D Tax Incentive & The 2020 Federal Budget:  A Good News Story At Last Program To Be Strengthened In 2020/21; Proposed Cuts Abandoned  

October 6, 2020 Kris Gale

The thousands of companies that deliver Australian innovation have received a tremendous boost in tonight’s Federal Budget.

The current R&D Tax Incentive (RDTI) Bill, that sought to introduce $1.8 billion in cuts over 4 years from 2019/20 onwards, has been abandoned. This means that the current RDTI regime applies for the 2019/20 and the current financial years.

In a truly exciting development, the value of the program has been effectively bolstered or maintained for all companies from 1 July 2021 onwards as part of the Government’s JobMaker initiative. 

For the purposes of this Update, we will quote from the Government’s media release:

“The Government will enhance previously announced reforms to invest an additional $2 billion through the Research and Development Tax Incentive (R&DTI).

For small claimants (turnover less than $20 million), the Government will increase the refundable R&D tax offset to 18.5 percentage points above the claimant’s company tax rate, and there will be no $4 million cap on annual cash refunds.

For larger claimants, the Government will streamline the intensity test from three to two tiers and increase the non-refundable R&D tax offset rates. The new rates will be the claimant’s company tax rate plus 8.5 percentage points for initial R&D expenditure up to 2 per cent R&D intensity, and 16.5 percentage points for R&D expenditure above 2 per cent R&D intensity.

The Government will also proceed with the increase in the cap on eligible R&D expenditure from $100 million to $150 million per annum.

There will be Improvements to the administration, integrity and transparency of the R&D Tax Incentive.

These changes apply from 1 July 2021 and will support more than 11,400 companies that claim the R&DTI.”

The next MJA Update will explore the prevailing offset rates that will be expected to apply from 1 July 2021 for various companies but this is unreservedly good news.

It will also be an opportunity to reflect on the significance of the announcement in terms of the recognition of the key role the RDTI has always played in driving our economy forward and why we trust that we will never revisit the experiences of the last 5 years when that role appeared to be one that the Government did not wish to endorse.

In the meantime, we wish you and all your organisations a very good evening.

Should you wish to discuss this matter further, please do not hesitate to contact Kris Gale on 02 9810 7211 or email kris.gale@mjassociates.com.au