Search for:

In brief

The Australian Government has proposed welcome changes to the R&D tax incentive with effect from 1 July 2021, although without entirely retreating from its hotly debated proposed reforms (which the Senate Economics Legislation Committee is due to report on by 12 October).


Companies with aggregated annual turnover of A$20 million or more will continue to be rewarded based on their “R&D intensity” (broadly, R&D spend as a proportion of total spend), but with two rather than three tiers of R&D intensity:

Overall R&D tax intensity R&D tax offset rate
0% to 2% Company tax rate plus 8.5% (38.5% for companies with a 30% tax rate)
Above 2% Company tax rate plus 16.5% (46.5% for companies with a 30% tax rate)

 

Although not completely alleviating the bias inherent in the R&D intensity threshold against industries with high operating costs, the good news is that this represents a significant increase in the R&D tax offset rate for big businesses conducting significant R&D activities, and for those falling below the 2% threshold, the measure retains the current R&D tax offset flat rate of 38.5% (in comparison, the proposed reforms effectively cut the R&D tax offset rate to 34.5% for expenditure below an intensity threshold of 4%).

For taxpayers eligible for the refundable tax offset (aggregated turnover less than A$20 million), the tax offset rate will be set at the taxpayer’s tax rate plus 18.5% – an increase from the proposed reforms, which would have cut the refundable offset rate to the tax rate plus 13.5%.  As the company tax rate decreases to 25% from 1 July 2021 for businesses with aggregated turnover of $50 million or less, this effectively represents no change to the current R&D tax offset flat rate of 43.5%. The previously-proposed A$4 million cap on annual R&D cash refunds will also not proceed (as originally proposed there was a carve out from this cap for clinical trials).

This new proposal will need to be passed through Australian Parliament to become effective.

Author

Ben McLaughlin is the chair of the Global Healthcare Industry Group and a partner in Baker McKenzie's Sydney office. He has over 25 years' experience in advising leading Australian and international public companies on mergers and acquisitions (M&A) and equity capital markets. Ben conceptualized the Baker McKenzie Healthcare MapApp, an acclaimed mobile application that enables clients to access over 1,000 pages of legal summaries. He has been recognized by Chambers for his work in Australian and international M&A matters, as well as in pharmaceuticals and life sciences. Ben is admitted to practice law in Australia and the US, and is an adjunct member of the Faculty of Law at the University of Sydney.

Author

Simone is a Partner in the Sydney office of Baker McKenzie, and holds a leadership role on the Firm's Global Indirect Tax Steering Committee. She is ranked by Legal 500 as a Next Generation Partner and is listed as a Women Leader in Tax by the International Tax Review. Simone is also an author and contributor to Thomson Reuters and CCH tax commentary. She has been a guest speaker at University of Sydney and the University of New South Wales, and is a regular panelist and presenter at Global Taxation Executive Institute events, the Global Tax Disputes Forum and the Asia Pacific Tax conference. Simone is a go-to person for advising companies in the digital economy / tech industry, investing/selling into Australia and managing cross border tax disputes. She has worked on the West Coast of the United States, advising US based multinationals and technology companies on Australian tax issues. She is known for being at the forefront of tax policy and tax law developments, understanding the application to a variety of business structures and supply chains. She has recently been appointed by the Australian Treasury to a group of experts providing input on tax policy and law.