An update on proposed changes to the legislation. Over the last two years, we’ve published a number of newsletters and items referring to proposed legislative changes to the Incentive. Having first announced these changes in May 2018 as part of the 2018/19 Federal Budget, the Government has yet to pass legislation to enact these changes.
Initially, a Bill was introduced to parliament in September 2018 to give effect to the Budget measures. This Bill was considered by the Senate Economics Legislation Committee who reported in February 2019 that it should not proceed until there is further consideration of of the R&D Tax Incentive measures. When the 2019 Federal Election was called in April 2019 the Bill lapsed.
The Treasury Laws Amendment (Research and Development Tax Incentive) Bill the introduced to Parliament on 5 December 2019 resurrected the measures from the previous Bill. Importantly, this Bill proposed that the measures commence on 1 July 2019. Since it’s introduction, the Bill has been referred to the Economics Legislation Committee. The Committee were due to report their findings by 30 April 2020, however the reporting date was extended to 7 August 2020 as the effects of the global pandemic began to be felt. This reporting deadline has now been extended to 24 August 2020, so we hope to be aware of the Committee’s findings by the end of the month.
Broadly, the current version of the Bill proposes to make the following changes:
- Increase the R&D expenditure threshold from $100 million to $150 million and make the threshold a permanent feature of the law.
- Instead of a flat 43.5% rate for all R&D entities, link the R&D tax offset for small R&D entities (i.e. those with an aggregated turnover of less than $20 million) to their corporate tax rate, plus a 13.5 percentage point premium. This will result in a base rate entity claiming the offset at the rate of 41% (for 2019–20) and 39.5% (for 2020–21).
- Cap the refundability of the R&D tax offset at $4 million per annum. This equates to spending of $9.756 million for base rate entities (assuming a 27.5% corporate tax rate) and $9.195 million for other R&D entities.
- Increase the targeting of the Incentive to larger R&D entities (i.e. those with an aggregated turnover of $20 million or more) with high levels of R&D intensity, which will reduce the benefits provided to certain entities and increase the benefit to others. The percentage point premium is proposed to range from 4.5% to 12.5%. This will result in a R&D tax offset ranging from 32% to 42.5% depending on the entity’s corporate tax rate and its level of R&D intensity, that is, the amount of R&D expenditure expressed as a proportion of the R&D entity’s total expenses.
Further information on the changes in the Bill can be found on this ATO webpage.Our team are happy to discuss any queries you might have.