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R&D Tax Incentive Update

Anthony Molloy

Proposed changes to the Research and Development (R&D) Tax Incentive were introduced to Parliament on 5 December 2019. The proposed changes include:

  • Replacing the 43.5% refundable R&D offset, with a rate calculated based on the company’s tax rate plus 13.5%. This reduces the net tax benefit from 16% to 13.5%.
  • Replacing the 38.5% non-refundable R&D offset, with the following rates based on the company’s ‘R&D Intensity’ (R&D expenditure as a proportion of the total business expenditure):
    • 0-4% intensity = company tax rate + 4.5%
    • 4-9% intensity = company tax rate + 8.5%
    • 9%+ intensity = company tax rate + 12.5%
  • Capping R&D refunds at $4 million, with an exemption for clinical trials.
  • Giving the ATO the ability to publicly disclose claimant information, including the amount of expenditure claimed.
  • Changes to the mechanisms for R&D feedstock, clawback and asset balancing adjustments.
The government attempted to amend the R&D legislation in 2018, however the amendments did not pass the Senate and the relevant bill lapsed on the calling of the 2019 Federal Election. This bill incorporates almost identical changes to the government’s previous attempt so it remains to be seen if the government can get the amendments passed this time. If the changes pass through the Senate and are legislated, they will apply to incomes years starting from 1 July 2019.