R&D Tax Incentive Senate estimate hearings reopened
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;
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.
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