Better targeting the Research and Development Tax Incentive

On 8 May 2018, the Government announced that they would amend the Research & Development Tax Incentive (R&DTI), to encourage additional investment in Research & Development (R&D) while also ensuring the integrity and fiscal affordability of the R&DTI.

The changes were originally expected to apply for income years commencing on or after 1 July 2018, however the Bill currently before Parliament provides for the changes to apply for income years commencing on or after 1 July 2019. The changes will include:

• For companies with an aggregated turnover of $20 million or more, the Government will introduce a premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year.
• Increase the R&D expenditure threshold from $100 million to $150 million per annum.
• For companies with an aggregated turnover below $20 million, the refundable R&D tax offset:    
  • will be a premium of 13.5 percentage points above the claimant's company tax rate
  • will be capped at $4 million per annum, with the balance converted to a non-refundable tax offset that may be carried forward
  • from R&D expenditure on clinical trials will be exempt from the cap.
• Additionally:    
  • improving the transparency of the program by publicly disclosing R&D claims
  • greater enforcement activity and improved program guidance to participants
  • amendments to technical provisions

Administrative Treatment

The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by Parliament. Past year assessments will not be reviewed until the outcome of the proposed amendment is known.

After the new law is enacted, taxpayers will need to review their positions back to the 2019/20 income year

• those taxpayers who claimed offsets which accord with the changes do not need to do anything more
• those taxpayers who under claimed offsets can seek amendments and if a reduction in liability results, interest on overpayment will be paid
• those taxpayers who over claimed offsets will need to seek amendments. No tax shortfall penalties will be applied and any interest accrued will be remitted to the base interest rate up to the date of enactment of the law change. In addition, any interest in excess of the base rate accruing after the date of enactment will be remitted where taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.

See Administrative Treatments for further information.

Legislation and supporting material

The Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019External Link, was introduced into Parliament on 5 December 2019.

The Senate referred the Bill to the Economics Legislation CommitteeExternal Link which is due to report by 30 April 2020. Closing date for submissions is 6 March 2020.

More information

Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) BillExternal Link was introduced to Parliament on 20 September 2018 and lapsed on 11 April 2019. The Senate Economics Legislation Committee considered this Bill and reported on 11 February 2019.

Exposure draft legislation and explanatory materialExternal Link

2018-19 Budget Paper No.2External Link page 21

Budget fact sheet: Reforming the R&D Tax IncentiveExternal Link

The findings of the 2016 Review of the R&D Tax IncentiveExternal Link