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Controversial R&D Tax changes reintroduced

CONTROVERSIAL R&D TAX CHANGES REINTRODUCED



Please note – There have been many changes and updates to these programs over the past few years. We love legacy content, it shows a history, it shows that we have always cared about these programs and notifying our client base. For more up to date information, please check our News or get in contact with us.


The contentious changes announced in the 2018 May budget to reduce the benefits available under the R&D Tax Incentive have been re-introduced with only minor amendments despite having been rejected by members of both sides of Parliament in the prior Senate Economics committee hearings. The main message is that any changes will not affect the current 18/19 R&D claims being processed and if the changes are passed they will be introduced from the 19/20 financial year onward.

The table below provides a comparison of the key features between the new and current law.


The expenditure threshold

NEW LAW CURRENT LAW
The R&D expenditure threshold is increased to $150 million. The R&D expenditure threshold applies to eliminate the incentive component of the R&D tax offset in relation to notional deductions in excess of $100 million.
The R&D expenditure threshold is a permanent feature of the law. The R&D expenditure threshold is legislated to cease on 1 July 2024.
The R&D expenditure threshold is a permanent feature of the law. The R&D expenditure threshold is legislated to cease on 1 July 2024.


The R&D Tax Offset for small R&D entities

NEW LAW CURRENT LAW
R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium. R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate of 43.5 per cent.
The amount of a refund that an R&D entity can receive is capped at $4 million per annum. Offset amounts that relate to expenditure on clinical trials do not count towards the cap and remain refundable. R&D entities with aggregated turnover of less than $20 million are entitled to a tax refund for any R&D tax offset they receive in excess of their income tax liabilities.


The R&D Tax Offset for companies over $20 million turnover

NEW LAW CURRENT LAW
R&D entities with aggregated turnover of $20 million or more are entitled to an R&D tax offset equal to their corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure. R&D entities with aggregated turnover of $20 million or more are entitled to a non-refundable R&D tax offset at a rate of 38.5 per cent.


R&D Intensity Premium

  • Notional deductions greater than 4% and up to and including 9% of total expenses 4.5%
  • Notional deductions greater than 4% and up to and including 9% of total expenses 8.5%
  • Notional deductions greater than 9% of total expenses 12.5%


Schemes to obtain an R&D tax benefit​

NEW LAW CURRENT LAW
The Commissioner may also deny a tax benefit in the form of an amount of a refundable or non-refundable R&D tax offset that an R&D entity seeks to obtain from a tax avoidance scheme. The Commissioner may deny a tax benefit in the form of a deduction or notional deduction that an R&D entity seeks to obtain from a tax avoidance scheme.


The uniform clawback rule

NEW LAW CURRENT LAW
Recoupment amounts and feed-stock adjustments give rise to an amount of assessable income equal to the grossed-up value of the incentive component of associated amounts of R&D tax offset. Recoupment amounts are subject to a standalone tax of 10 per cent. One third of feed-stock adjustments are included in an R&D entity’s assessable income.
An amount is included in the assessable income of the R&D entity that received or is entitled to the R&D tax offset in relation to a recoupment amount or feed-stock revenue received by a related entity. In cases involving related entities, the entity receiving a recoupment is subject to recoupment tax. In cases involving related entities, the R&D entity entitled to the R&D tax offset is subject to a feed-stock adjustment if the related entity receives feed-stock revenue.


Balancing adjustments for R&D assets

NEW LAW CURRENT LAW
The R&D entity’s assessable income is increased by an amount equal to the grossed-up value of the incentive component of the associated amounts of R&D tax offset.
  • For an R&D asset held only for R&D purposes where the balancing adjustment amount is included in the R&D entity’s assessable income – the amount is generally increased by one third.
  • For an R&D asset held partially for R&D purposes where the balancing adjustment amount is included in the R&D entity’s assessable income – the R&D component of the amount is generally increased by one third.
  • For an R&D asset held only for R&D purposes where the balancing adjustment amount is allowed as a deduction – the deduction is included in the R&D entity’s R&D tax offset calculation.
The R&D entity is entitled to a deduction equal to the grossed-up value of the incentive component of the associated amounts of R&D tax offset that would have been obtained if the R&D component of the balancing adjustment amount was included in the calculation of the offset. For an R&D asset held partially for R&D purposes where the balancing adjustment amount is allowed as a deduction – the R&D component of the amount is increased by one third or (for small R&D entities) or one half
Similar amended rules apply to balancing adjustments for R&D assets held by R&D partnerships Similar rules apply to balancing adjustments for R&D assets held by R&D partnerships.
The transitional rules are amended in line with the primary amendments but continue to apply to R&D assets acquired before the introduction of the Incentive in 2011. Transitional rules apply to R&D assets acquired before the introduction of the Incentive in 2011.


– TCF Services will ocntinue to cover these reintroduced R&D Tax Changes –


Services
Ryan can assist with services such as:

  • Scope your potential to claim various grant programs
  • Assist with the preparation and lodgement of grant applications
  • Review or provide a health check on your internally prepared grant applications
  • Establish record-keeping practices as required under various grant programs
  • Provide prepayment loans against future cash refunds under the R&D Tax Incentive
  • Keeping industry informed on all new Government policy and grant initiatives

Don’t hesitate to give us a call.

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