Welcome news for R&D tax claimants from the federal budget: RSM

// RSM’s Simon Harcombe discusses the impact of the recent federal budget on the R&D tax incentive…

Forget the pandemic, the R&D Tax Incentive has been dogged by contentious proposals long before COVID changed the world.

An initiative designed to keep research and innovation home grown, the incentive was attractive to a number of players including SMEs, startups and larger tech groups. Outcry ensued when last year’s budget measures effectively cut $1.8 billion from the scheme.

The 2020 Federal budget, far removed from the controversy of 2019, delivered welcome news for the R&D Tax Incentive.

Several key measures of the Federal Budget passed through both houses of Parliament on 9 October 2020 as the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020 has been sent to the Governor General of Australia for Royal Assent.

The bill has received greater industry support as it provides certainty and assistance to tax payers who intend to claim the tax incentive.

The Federal budget outlined various economic stimulus measures with the intent to support Australia’s economic recovery through the COVID-19 pandemic and beyond. The Treasurer committed $2 billion to the R&D Tax Incentive, claiming research and development to be critical to Australia’s future economic prosperity.

Perhaps the winners of these announcements are entities with turnover of $20 million or less for which the proposed $4 million cap on claims is abandoned and replaced with a rate of 18.5 percentage points above the claimant’s corporate tax rate.

For larger businesses generating more than $20 million per year, a tiered approach remains but changes from three to two intensity tiers with an increase in the non-refundable R&D tax offset rates.

The new R&D premium tiers will be based on the claimant’s company tax rate plus 8.5 percentage points for an R&D spend between 0 per cent and 2 per cent of overall expenditure, and 16.5 percentage points above 2 per cent. Of note also is the increase in the R&D expenditure cap from $100 million to $150 million.

Commencing from 1 July 2021, the changes will help more than 11,400 companies, as cited by the Treasurer, that invest in research and development.

Other budget announcements bode well for the greater research community, with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) allocated an extra AU$459 million over four years.

This budget has also committed $1 billion to support universities’ costs of research, including $41.6 million over four years to universities and local industries to partner on innovative projects.

Long time supporters of Women in STEM were also pleased with announcements of the $25.1 million over five years that will be used for a Women in STEM Industry Cadetship program and another $14.5 million over four years to enhance existing initiatives supporting girls and women to gain STEM skills. Our friends at WiTWA are already sharpening their pencils as they prepare to be a part of the initiatives.

This is a very succinct summary of changes and key measures as they affect the R&D Tax Incentive, but for those of you interested in the detail, in addition to the various other measures resulting from the 2020-2021 Federal Budget, please refer to RSM’s 2020/2021 Federal Budget Analysis: https://www.rsm.global/australia/federal-budget-2020-21.

If you are unsure of your business’ eligibility to claim the R&D Tax Incentive or would like more information, please visit: https://www.rsm.global/australia/service/tax-services/rd-tax-incentive

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