On the last sitting day of parliament this month, the R&D Tax amendment Bill was introduced in the Lower House disguised under the curious subheading of The Treasury Laws Amendment Bill (Making Sure Multinationals Pay Their Fair Share of Tax in Australia) Bill 2018.
As announced in the May budget, the Bill proposes significant cuts, thus reducing the Government’s outlay to assist in reducing the budget deficit, it does absolutely nothing in terms of supporting ongoing innovation to create the new jobs and industries of tomorrow, the headlines cuts are:
- R&D companies under $20m in annual revenue eligible for the refundable tax offset will be entitled to an R&D benefit equal to 13.5% of R&D expenses claimed if trading in profit OR 41% for those trading with matching tax losses to cash out (a rate cut of 2.5%). In addition, the refundable cash component for any offset claimant will be capped at $4m (excluding clinical trials).
- Companies with annual revenue of $20m or more will be entitled to a tiered offset rate based on their R&D intensity as follows:
- Tier 1 – R&D expenses representing up to and including 2 per cent of total company expenses will receive a 4% benefit (previously 8.5%)
- Tier 2 – R&D expenses representing greater than 2 and up to and including 5 per cent of total company will received a 6.5% benefit (previously 8.5%)
- Tier 3 – R&D expenses representing greater than 5 and up to and including 10 per cent of total company expenses will receive a 9% benefit (not many R&D claimants will ever achieve this level of intensity and if they do it will be an averaged return across Tier 1, 2 and 3 which would equal 6.5% not 8.5%)
- Tier 4 – R&D expenses representing greater than 10 per cent of total company expenses will receive a 12.5% benefit (will likely only apply to very profitable leading edge multi-national technology companies who can afford this level of R&D investment, when averaged across the 4 tiers it equates to a 8% return and would most likely advantage the very same multi-nationals who currently “don’t pay their fair share of tax”.
This Bill provides greater clarity than the original Exposure Draft on the following definitional areas:
- The R&D intensity will be calculated on the basis of total expenses being as reported in Item 6 of the company’s Tax Return
- Clinical trials have been further defined for the purposes of the exclusion to the $4m refundable tax cash refund cap
- The rules relating to clawback and Feedstock adjustments have been amended to reflect the cuts to the proposed rates of return
- Clawback amounts will be excluded from the income test for ESICs (early stage innovation companies)
- The annual publication of the R&D Tax recipients with benefit amounts claimed will be delayed 2 years to better protect commercially sensitive information
As the Bill is likely to be referred to a Senate Economics Legislative Committee, we expect the Committee will seek to engage the innovation community in further consultation. TCF Services will continue to follow the progress of the Bill and keep you updated.
Should you wish to discuss this matter further, please do not hesitate to contact
Managing Director, TCF Services
Tax agents registration number 39849006
P: 02 8219 4900