While it seems like an eternity since it was first announced, the new R&D Tax Credit has finally been passed. So what does that mean for the average company plugging away at research and development?
The R&D Tax Credit is the key support tool used by the government to assist businesses undertaking R&D in Australia.
The new program will apply retrospectively from 1 July 2011 and replaces the R&D Tax Concession.
For a long time the R&D Tax Concession only provided a benefit for those already doing R&D, but now, the new R&D Tax Credit has the ability to actually drive and encourage new innovation.
The new R&D Tax Credit will provide a greater benefit for companies undertaking R&D, especially for Australian start-ups.
In the first year of the program, 2011-12, the government has allocated a total funding pool of $1.8 billion. Most importantly though, the program is an entitlement; eligible applicants can be sure to receive a benefit as long as they qualify – it’s not competitive.
So what’s different?
1. Larger companies can access the R&D Tax Credit.
The Credit will allow larger companies, with a turnover up to $20 million and in losses, to potentially access a cash return.
This means a lot more companies can now access the R&D Tax Credit than before.
2. The R&D Tax Credit will be separated from the corporate tax rate
As a result of this, the level of the Credit remains the same even if corporate tax rates drop.
So if corporate tax rates go down to 29% or 28%, the Tax Credit will still remain at 45 cents (or 40 cents for R&D entities with turnover of more than $20 million) for every dollar of eligible R&D expenditure. No exceptions.
3. The rate of benefit will rise
Currently the R&D Tax Concession has a rate of 37.5%, so if you spend $100k on R&D and you’re in loss, then you can get $37,500 cash back from the government.
With the advent of the new R&D Tax Credit, that rate goes up to 45% and your cash benefit would be $45,000 in the above scenario – a significant increase. Even if you are looking at the non-refundable tax offset, the rate has increased to 40%.
4. R&D Expenditure is uncapped
Under the R&D Tax Concession, expenditure was capped at $2 million. Now with the R&D Tax Credit, there is no cap on total R&D expenditure in order to access the cash benefit.
5. The definition of Research and Development has changed
Whereas the test of R&D Tax Concession was to do with ‘Innovation and High Technical Risk’, the new R&D Tax Credit now looks at Research and Development from a scientific perspective.
This will be daunting and potentially confusing to many long term users of the R&D Tax Concession as well as those that are new to the process.
Remember, determining eligibility for those that apply may be a challenge as the program is very detailed and complicated; it contains numerous changes from the previous program.
It is also very important to be aware that under the new Tax Services Agent Act 2009, any consultants for R&D applications must now be Registered Tax Agents (RTAs).
With the launch of this new program, companies should consider their eligibility early. Companies that may have missed out in the past should revisit their eligibility with the new rules.
Review the new guidelines and get expert advice before launching into an application.
Adrian Spencer, CEO of GrantReady, is a dedicated grants specialist who assists organizations across Australia to access State and Federal Government grants, rebates and concessions. Prior to establishing GrantReady, he worked for leading international accounting and mining firms. For more information on GrantReady, visit www.grantready.com.au.