R&D tax offset

The Federal Budget in May proposed replacing the existing R&D tax concessions with a new R&D tax offset from the 1 July 2010.

On 18 September 2009 the Treasurer and Minister for Innovation Industries, Science and Research released a consultation paper setting out the principles for the new concession.

The current arrangements provide for a tax deduction for R&D expenditure however the new system will allow for a non-refundable 40 per cent R&D tax offset for companies and 45 per cent refundable R&D tax offset for smaller companies (turnover less than $20m).

For small companies this will equate to a deduction of 150 per cent effectively on the current corporate tax rate at 30 per cent.

For example if a small company has a zero tax payable position the offset can be applied to reduce other tax liabilities (such as GST) and any other residual unused amount can be refunded as cash to the company.

However there is a need for some planning to be done as there is now a more stringent definition of eligible R&D activity. In the consultation paper eligible R&D activity is defined as systematic, investigative and experimental activity that:

	involves both innovation and high levels of technical risk
	is for the process of producing new knowledge or improvements.

The consultation paper also proposes that supporting R&D will be subject to limitations.

It also provides that the location of the R&D activity is to be in Australia and this is a crucial factor for determining eligibility.

For those who carry on R&D activity there is a need to do some careful planning and preparation as this new arrangement will be effective from 1 July 2010. Please contact Saward Dawson to make the most of these changes.

Published : 10 December 2009