R&D Tax Incentive

R&D Tax Incentive Updates for FY2019 per the 2018-2019 Budget

2019-updates-rd-tax-incentive

What do recent budget proposals mean for the status of the R&D Tax Incentive in FY2019. Read on for our quick summary for the potential updates for the RDTI.

The recent budgets saw critical updates to how the R&D Tax incentive is addressed for larger entities and with less impact to startups who are often unprofitable in early years.

The changes outlined in the budget are expected to apply to R&D claims from 1 July 2018 assuming the bill becomes legislation.

Small businesses - Aggregated turnover under $20 million

Currently, small businesses are entitled to a refundable tax offset of 43.5% through the R&D Tax Incentive.

The changes proposed will align the benefit with the company’s tax rate for that year, with the refundable tax offset rate being the tax rate plus 13.5 percentage points. For many small businesses,
this will mean a refundable tax offset of 41%.

A $4 million annual cap on cash refunds will be introduced, with R&D expenditure on clinical trials being excluded from the cap. Any amount beyond the cap will be carried forward as a non-refundable tax offset.

While there is clearly a reduction in the benefit, the R&D tax incentive will still provide a generous tax offset for small businesses and startups.

Large businesses - Aggregated turnover over $20 million

Businesses with an aggregated turnover greater than $20 million will feel a greater impact from these changes.

Multiple rates of R&D tax offsets ranging from company tax rate + 4% to company tax rate + 12.5% will be available depending on the company’s R&D expenditure intensity.

The following table demonstrates the benefits in store should the proposed changes be implemented.

Aggregated Turnover R&D Intensity Company Tax Rate* Percentage Points R&D Tax Offset
Under $20M N/A 27.50% 13.50% 41%
$20M to <$50M
0-2%
2-5%
5-10%
Above 10%
27.50%
4
6.5
9
12.5
31.50%
34% (Not including first 2% of total expenditure)
36.5% (Not including first 5% of total expenditure)
40% (Not including first 5% of total expenditure)
≥$50M
0-2%
2-5%
5-10%
Above 10%
30%
4
6.5
9
12.5
34%
36.5% (Not including first 2% of total expenditure)
39% (Not including first 5% of total expenditure)
42.5% (Not including first 10% of total expenditure)

*Company Tax Rates used are based on the Enterprise Tax Plan Act.

If you have any queries around how the proposed changes could affect you, please reach out to our team for R&D Tax Incentive expertise.

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