We would like to let you know about the changes to the R&D tax incentive as a result of the recent budget update. 

The best way is to forward the following summary that was written by Gerry Frittman of TCF Services. Rather than recreating or paraphrasing this, we want to acknowledge his contribution.

In the Budget, the Federal Government 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 which account for up to 2% of total company expenses and:
• An additional 16.5% (above the company tax rate) against eligible R&D expenditures exceeding the baseline 2% intensity test. 

The omnibus tax bill has now passed both houses of Parliament, paving the way for the enhancements to commence from the 1st of July 2021. 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 lodgment 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 which accounts for up to 2% of total company expenses and an additional 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 which accounts for up to 2% of total company expenses and an additional 16.5% on eligible R&D expenditure exceeding the 2% baseline.