R&D Tax Credit to boost business investment

The Rudd government claims it will simplify and enhance the Research and Development Tax Concession so that it provides better incentives and more support for Australian jobs in the face of the global recession.

The new R&D Tax Credit is the biggest reform to business innovation support for more than a decade. It will boost investment, support jobs and strengthen Australian companies so they can take full advantage of new opportunities as the economy recovers.

From 2010–11, the government will replace the complex and outdated R&D Tax Concession with a simplified R&D Tax Credit which cuts red tape and provides a better incentive for business to invest in research and innovation.

Importantly, the new R&D Tax Credit will better reflect the financial realities facing many businesses during the global recession. It will help ensure that Australian businesses are well placed to take full advantage of generous incentives to innovate during the global recovery.

The new Tax Credit provides a 45% refundable credit for firms with an annual turnover of less than $20 million — equivalent to a Tax Concession of 150%. This means that firms will receive a tax refund of 45% of their R&D spending when they file their tax return.

This measure effectively doubles the standard level of support for innovative small and medium-sized companies. The measure reverses the previous government’s retrograde decision to halve the R&D Tax Concession when it came to office.

Importantly, the refundable credit will be available to small companies in tax loss, with no limit on the level of R&D expenditure they undertake. This will provide a real boost to start-up companies in areas such as biotechnology and ICT.

Around 5500 small firms stand to benefit under these new arrangements.

Businesses with a turnover of more than $20 million will also benefit from the new scheme, with access to a 40% non-refundable credit — equivalent to a tax concession of 133%.

Companies undertaking R&D in Australia where the intellectual property is held offshore will also be able to access the 40% non-refundable credit.

As a transitional measure for 2009–10, the R&D expenditure cap for the existing R&D Tax Offset will be lifted from $1 million to $2 million. The cap is the maximum amount a firm can spend on R&D to be eligible for the Tax Offset.

This change addresses the perverse incentive for firms to limit their R&D spending under the current threshold, and will provide a further boost to small companies in research-intensive industries of the future.

Under the new Tax Credit system, eligibility criteria will be tightened to make sure that our investment is getting the best results — supporting only genuine R&D. This will provide offsetting savings to fund improvements to the system.

The government will consult further on the eligibiltiy criteria in developing legislation for the new Tax Credit. A consultation paper will be released in the next few months.

The complex Premium Concession and International Premium will be abolished. Industry feedback indicates that the unpredictability of the Premium means it provides little or no incentive for companies to invest in new projects or for multinationals to bring their R&D to Australia.

The new R&D Tax Credit will provide certainty for business and its operation will align with international best practice. Under this simpler system, businesses will be able to invest in R&D with confidence.

The reform of the R&D Tax Concession will complement the government's new $196.1 million to establish a Commonwealth Commercialisation Institute and reaffirms its commitment to supporting innovation in Australia.