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R&D Tax Incentive Senate estimate hearings update

 

TCF NEWSLETTER

 

Has Government miscalculated its numbers and misplaced its intent? 

Despite receiving strong objection from all stakeholders to further reducing the benefits by up to $1.8 billion, the Government hurriedly re-opened the R&D Tax Incentive Senate estimate hearings to drive the amendments through so that claims lodged from 1st July for 19/20 year R&D activities would be immediately affected by the reductions listed below if passed:

  • R&D intensity test to apply for companies with annual aggregated revenue of $20m or more with a base rate starting at 4.5% – the flat rate is currently 8.5%
  • Increasing the R&D expenditure threshold from $100m to $150m for companies with annual aggregated revenue of $20m or more
  • Capping refundable cash refunds to $4m for companies with annual revenue of less than $20m
  • Reducing the R&D tax net benefit to 13.5% to align the small business tax rate cuts for companies with turnover of up to $50m which equates to a cash refund of 41% for start-ups with no revenue or 13.5% for companies trading in profit with annual revenue under 13.5% – a reduction of 2.5%

Given the road-map of issues (listed below) which have affected the program over the past 2-3 years it is surprising that Government does not seem to realise that the budgetary reductions they were looking for have already been achieved as an outcome of:

  • The heavy audit activity undertaken by the scheme administrators effectively reducing the number of claimants from over 15,000 to under 11,000 based on current registrations lodged for the 18/19 claims
  • Recovery action taken seeking repayments of funds already paid out in prior years for claims found to be ineligible OR not supported by contemporaneous record keeping
  • COVID 19 reaping economic havoc with capital raising, commercialisation of new technologies and ongoing investment in 19/20 year R&D activities resulting in less far smaller claims being lodged from the 1st July.

Aligning the net R&D tax benefit with the small business tax rates makes sense as it was never intended that the R&D benefit would increase to 16% for companies trading in profit under $20m or 11% for companies between $20m and $50m when the SME tax rates were cut.

Total program costs already have and will continue to reduce during a period in which most other countries are increasing their R&D outlay as part of an overall strategy to work through the economic recession brought about by COVID 19, it all begs the question;

Has Government miscalculated its numbers and misplaced its intent?

The senate committee is due to hand down its report on the RDTI changes around mid October 2020 around the time budget is due to be announced.

Regards,

Gerry Frittmann and the team at TCF Services

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