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Research and Development tax incentives announced to reward innovation

Naida Beltrame 
08/10/2020

The Federal Budget 2020/21 handed down this week has highlighted Research and Development (R&D) and innovation support for companies as an important part of the Government’s strategy for economic recovery. 

There were some welcome announcements, in the form of revised R&D tax incentive changes. These will provide greater certainty for R&D investment while still rewarding those companies that commit a greater proportion of their business expenditure to R&D by:

  • Reducing the last proposed three tiers to a two-tiered approach.
  • Increasing the rates applicable.
  • Deferring the start date of proposed changes.

The changes are proposed to commence from a deferred start date of 1 July 2021. 

For small companies with aggregated turnover of less than $20 million, the changes include:

  • The refundable R&D tax offset will be set at 18.5% above the claimant’s company tax rate. On a 25% tax rate in the 2021/22 financial year, this equates to a 43.5% refundable offset rate.
  • The proposed $4 million cap on refunds will not proceed. 

For larger companies with aggregated annual turnover of $20 million or more, the changes include:

  • Application of a non-refundable R&D offset rate tied to a company’s incremental R&D intensity*. The R&D rates will be the claimant’s company tax rate plus:
    • A base rate of 8.5% above the claimant’s company tax rate for R&D expenditure between 0% and 2% R&D intensity; and
    • An enhanced rate of 16.5% above the claimant’s company tax rate for R&D expenditure above 2% R&D intensity.
  • The R&D expenditure cap will increase from $100 million to $150 million.

The remaining R&D measures are unchanged from those in the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 currently before the Senate.

For more information on R&D tax incentive changes, talk to your adviser or contact the Crowe team.

For more Federal Budget coverage and news as it comes to hand, visit our Federal Budget Resource Centre.