Federal Budget 2020-21 | R&D incentives

The Government announced the following changes to the R&D tax incentive (RDTI), proposed to take effect from 1 July 2021:

Companies with group turnover of less than $20 million

The refundable tax offset will be set at 18.5% above the claimant company’s tax rate. For many businesses, this results in the same level of RDTI as the current rules.

Interestingly, unless the Government introduces a cap on the RDTI rate, claimants who earn more than 80% of their assessable income from passive sources (interest, rent, dividends, royalties and net capital gains) will receive an increased RDTI compared to current rates. For those companies, the RDTI will be 48.5% (30% + 18.5%) of eligible R&D expenditure.

The second key feature of the announcement is the removal of the proposed $4 million cap on RDTI refunds. This measure will only have application to businesses that are spending at least $9.2 million on eligible R&D expenditure in an income year.

Companies with group turnover of at least $20 million

As previously proposed, intensity thresholds will be introduced, and companies will be rewarded for increasing the intensity of their R&D spend. The RDTI will be equal to the company tax rate plus:

• 8.5% for R&D expenditure comprising up to 2% of total expenditure; and
• 16.5% for R&D expenditure exceeding 2% of total expenditure.

Compared with current rules, this measure will be beneficial for claimants with high levels of R&D expenditure as a portion of total expenditure, whereas other businesses will see a reduction in the overall benefit of the R&D tax incentive.

All companies

The R&D expenditure threshold will increase from $100 million to $150 million. This measure will have limited application to SME’s.