Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
General outline and financial impact
This Bill amends the ITAA 1936, the ITAA 1997, T(IOEP)A 1983 and the IR & DA 1986 to change and make additions to the R & D tax concession. These amendments are designed to encourage investment in business R & D. The T(IOEP)A 1983 is also amended.
The main amendments to be made to the income tax law include:
- the inclusion of an objects clause and some changes to the definition of R & D activities;
- an R & D tax offset, for small companies to have access to the cash equivalent to the R & D tax concession;
- a premium rate of 175% for additional R & D;
- the removal of the exclusive use test and the introduction of 125% effective life write-off for R & D plant; and
- a retrospective change made to the manner in which plant expenditure is claimed.
Date of effect: The changes to the definition of R & D activities and to plant expenditure are to apply from 12.00 pm, 29 January 2001. The R & D tax offset and the 175% premium rate are effective from the first income year commencing after 30 June 2001. The retrospective changes to the claiming of plant expenditure are to apply from 1 July 1985 until noon 29 January 2001.
Proposal announced: The retrospective changes to R & D plant were announced on 26 April 2001. The remaining measures were contained in the Backing Australias Ability package announced by the Prime Minister on 29 January 2001.
Financial impact: The measures will result in a cost to the revenue as set out in the following table:
Compliance cost impact: Minimal.
Impact: The proposed amendments will impact upon companies who are undertaking R & D activities, their advisers and the government agencies who administer the R & D tax concession.
- An aid to users in clarifying the interpretation of eligible R & D activities.
- Encouraging the use of strategic planning.
- A fairer and more balanced approach to the treatment of expenditure on plant items used for R & D has been adopted. The removal of the exclusive use test will enable companies to claim the R & D tax concession where plant is only being used partially for R & D.
- A refundable tax offset will be available to assist small companies in tax loss. This will increase the benefit of the R & D tax concession for small companies and improve their cash flow during their initial growth phase.
- The model chosen for the 175% premium rate, for companies that undertake additional R & D, will induce additional R & D whilst increasing certainty for R & D decision makers and improving access to the concession for companies.