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Government enhances R&D Tax Incentive and provides certainty to claimants

R&D Tax Incentive Update

 

Newsletter: 12.10.20

 

As part of an enormous package of industry assistance measures announced in the Budget, the Federal Government wisely walked away from making any cuts to the R&D Tax Incentive. Instead, they are increasing benefits and allocating an additional $2 billion as part of the COVID 19 economic recovery plan.

The enhanced R&D Tax Incentive measures include the following changes:

  • A refundable tax offset of 18.5% above the company tax rate for SME’s with an annual turnover of less than $20m
  • A non- refundable tax offset based on a 2 tier R&D intensity test for larger companies over $20m in annual turnover as follows:

                  – A baseline rate of 8.5% above the tax rate against eligible R&D expenditures up to 2% of total company expenses and:

                  – 16.5%, above the company tax rate, against eligible R&D expenditures exceeding the baseline 2% intensity test.

The omnibus tax bill has passed both houses of Parliament, paving the way for the enhancements to commence from the 1st of July 2021. Meanwhile, the program will remain as-is for claims lodged covering the 19/20 financial year but as the company tax rate reductions vary dependent on different tiers of annual turnover, the net benefit will also vary as it does now for companies between $20m and $50m turnover.

Listed below demonstrates the reductions in company tax rates and the actual rates of return under the R&D Tax Incentive for the lodgement of current FY 19/20 claims and the next two financial years:

FY 2019–20

  • <$20m – Company Tax Rate: 27.5%  – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 16% (when trading in profit)
  • $20m-$50m – Company Tax Rate: 27.5% – Non-Refundable Tax Offset: 11%
  • >$50m – Company Tax Rate: 30% – Non-Refundable Tax Offset:8.5%

FY 2020–21

  • <$20m – Company Tax Rate: 26% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 17.5%  (when trading in profit)
  • $20m-$50m – Company Tax Rate: 26% – Non-Refundable Tax Offset: 12.5%
  • >$50m – Company Tax Rate: 30% – Non-Refundable Tax Offset: 8.5%

FY 2021-22

  • <$20m – Company Tax Rate: 25% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 18.5% (when trading in profit)
  • $20m-$50m – Company Tax Rate: 25%Non-Refundable Tax Benefit/2 tier benefit: 8.5% on eligible R&D expenditure up to 2% of total company expenses and 16.5% on eligible R&D expenditure exceeding the 2% baseline.
  • >$50m – Company Tax Rate: 30% – Non-Refundable Tax Benefit/2 tier benefit: 8.5% on eligible R&D expenditure up to 2% of total company expenses and 16.5% on eligible R&D expenditure exceeding the 2% baseline.

TCF Services

If your company is undertaking Research & Development activities in any industry sector, our professional team of consultants can scope your eligibility and potential benefit, prepare and lodge your applications and establish compliant record-keeping processes to underpin the defensibility of your claim.

We also offer R&D Tax prepayment loans against future R&D cash refunds to assist you with funding your ongoing R&D activities without diluting equity at an early stage.

In addition, we will also review your ability to claim other available grants on offer from either State or Federal Government.

If you have any questions give us a call, happy to assist.

Regards,

Gerry Frittmann and the team at TCF Services

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