Despite winning the recent Federal election and appearing to have a mandate to drive contentious legislation through with a majority in both houses based on support from like- minded independents, the controversial changes announced in the 2018 May budget to reduce the benefits available under the R&D tax incentive by $2.4 billion have been removed from the legislation recently re-introduced to Parliament earlier this month.
Instead the Government has committed to review issues flagged by the Senate Economics Committee who rejected the May 2018 amendments and have committed to reform the program without providing any further clarity other than stating that an Innovation statement will be released in November.
In preparation of the Government’s desire to retrospectively align the net benefit of the program to 13.5% over the reduced company tax rates for companies under $20m in annual revenue and 8.5% for companies under $50m, the ATO have announced their administrative treatment to cover 18/19 year claims whereby claimants lodging and receiving the higher rate of return now (i.e.16% or 11%) who will be required to amend and refund the additional benefit if those changes as expected are passed by Parliament in the next few months.
Given that $500m has already been reaped back through rigorous audit activity over the past 2 years and the number of annual claimants having dropped by over 2000 also as an outcome of the integrity measures being applied, coupled with the expected reduction of 2.5% to align the rate of return to company tax reductions, it is expected that the $2.4 billion in savings sought by Government is in effect well under the way without applying the other reductions which were not well received thus giving the Government the opportunity to rethink their approach to incentivise local R&D activities without the immediacy of ongoing budgetary concerns.
Whilst uncertainty still exists going forward at least claimants with annual revenue of $20m or more can now be sure that the intensity test changes which would have reduced their potential benefit to as low as 4.5% has been deleted from the re-introduced legislation and won’t apply retrospectively for the 18/19 year claimed R&D activities.
Let’s see what happens in November; it certainly begs a load of questions like:
- When will the program provide certainty?
- Will the start-up software companies get their own program or eligibility criteria?
- Will the R&D Tax Incentive be refocused or redesigned?
TCF Services Pty Ltd
Tax agents registration number 39849006
P: 02 8219 4900