R&D tax rate cut effective from 1 July 2016

September 16, 2016 Sarah Lander

Just before midnight last night, the Senate voted to approve the Budget Savings (Omnibus) Bill 2016. As you will recall from an earlier MJA Update, this Bill included a 1.5% rate cut to the R&D tax offset.  This rate cut applies to all eligible entities for tax years commencing on or after 1 July 2016.

Whilst other aspects of the Bill were the subject of debate, the cut to the R&D offset rate had bi-partisan support.

MJA acknowledges that fiscal repair is vitally important however we understandably lament the fact that this rate cut negatively impacts on the current government support to companies engaged in innovation.

There is an issue with this new measure in that the cut to the rate did not take into account the need to amend other provisions within Division 355, namely the various R&D clawback provisions.  As it currently stands, claimants who have feedstock expenditure claims or who have R&D projects that include grant monies (eg where entities work collaboratively with universities and receive government grants), will now be effectively penalised if they have an aggregated turnover of greater than $20 million.  The clawback calculations require entities to clawback 10% in their tax incentive schedules yet the incentive is only offering those entities with aggregated turnover of greater than $20 million an after tax benefit of 8.5%.  So, those entities will be worse off by 1.5% because they have an R&D claim.  We recognise that this is an unintended consequence and we are sure neither side of parliament intended to penalise companies who, inter alia, collaborate with universities and research organisations and claim the R&D incentive.  We will work closely with all relevant parties in an effort to prevent this from being an R&D tax dis-incentive

In addition to working with government to identify the appropriate measures to fix the unintended consequences of this rate cut, we are now encouraging the government to release the results of the FFF review, handed up in April 2016, so that the innovation community can meaningfully discuss a way forward that truly incentivises R&D while being sensible about burgeoning costs.

Should you wish to discuss this matter further, please do not hesitate to contact
Sarah Lander on 02 9810 7211 or email sarah.lander@mjassociates.com.au