The Australian Department of Industry, Innovation, and Science has released for public consultation a review paper on the R&D Tax Incentive. The review was undertaken to identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive, including the encouragement of additional R&D spending in Australia. The current incentive provides for a 45% refundable tax offset for eligible entities with an annual turnover below AUD 20 million and a non-refundable 40% tax offset for all other eligible entities (proposed to be reduced to 43.5% and 38.5% respectively).
To improve the R&D Tax Incentive, six main recommendations are set out in the review paper:
- Recommendation 1. Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses;
- Recommendation 2. Introduce a collaboration premium of up to 20% for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly-funded research organizations. The premium would also apply to the cost of employing new STEM PhD or equivalent graduates in their first three years of employment. If an R&D intensity threshold is introduced (see below), companies falling below the threshold should still be able to access both elements of the collaboration premium;
- Recommendation 3. Introduce a cap in the order of AUD 2 million on the annual cash refund payable under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income;
- Recommendation 4. Introduce an intensity threshold in the order of 1% to 2% for recipients of the non-refundable component of the R&D Tax Incentive, such that only R&D expenditure in excess of the threshold attracts a benefit;
- Recommendation 5. If an R&D intensity threshold is introduced, increase the expenditure threshold to AUD 200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia; and
- Recommendation 6. That the Government investigate options for improving the administration of the R&D Tax Incentive (e.g. adopting a single application process; developing a single program database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes), and to improve transparency, the Government should publish the names of companies claiming the R&D Tax Incentive and the amounts of R&D expenditure claimed.
Click the following link for the Review of the R&D Tax Incentive page, which includes links to the full review paper and related information. Comments must be submitted by 28 October 2016.