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Does the 16-17 Federal Budget Impact the R&D Tax Incentive?

In a bid to broaden the economy away from a reliance on mining, the Australian government launched the National Innovation and Science Agenda (NISA) last December. The Australian Federal Budget for 2016-17 released on Tuesday night reaffirmed several elements of last year’s $1.1 billion innovation statement. Whilst the budget did not state any meticulous changes to the R&D tax incentive, a number of other changes have the potential to complement local R&D activity.

Most notably, under a 10-year plan, the corporate tax rate will decrease for all companies from 30% to 25%. From 1 July, the small business tax rate will be cut by 1%, creating a figure of 27.5%. In addition, the turnover threshold for small businesses able to access a reduced tax rate will be increased to $10 million (currently companies under $2 million tax rate of 28.5%). The proposed changes to the corporate tax rate will therefore affect the permanent R&D benefit (R&D tax offset rate minus corporate tax rate) for companies with less than $10 million.

Therefore, the proposed figures for companies under $10 million would be:

  • R&D Tax Offset Rate (45%) – Proposed Corporate Tax Rate (27.5%) = Permeant Benefit (17.5%).

This ultimately results in a 1% increase in permanent benefit when compared to figures with the current corporate tax rate. To clarify, the current figures are as follows for companies under $20 million:

  • R&D Tax Offset Rate (45%) – Current Corporate Tax Rate (28.5%) = Permeant Benefit (16.5%).

Furthermore, on Wednesday morning the Senate in Canberra confirmed two new tax incentives to encourage early-stage investing. The measures – the Tax Incentive for Early Stage Investors and New Arrangements for Venture Capital Limited Partnerships – will now be in place for the 2016-17 financial year. The Tax Incentive for Early Stage Investors brings tax concessions to eligible early stage investors who invest in qualifying companies, including a capped 20% non-refundable tax offset and 10-year capital gains tax exemption for investments. The New Arrangements for Venture Capital Limited Partnerships brings a raft of changes aimed to improve access to capital and make investing in venture capital easier and internationally competitive, according to the Government.

In summary, the stability of the R&D tax incentive scheme in the federal budget will no doubt come as a relief to many companies, as the current programme provides a high level of encouragement for companies to engage in R&D and is a broad-based, easily accessed and significant Incentive. Moroever, the lower corporate tax rate and new tax incentives are a welcome change for Australia’s innovative community.

If you have any further questions on the R&D tax incentive, please do not hesitate to contact one of AusGrant today.

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