House of Representatives

Taxation Laws Amendment (Research and Development) Bill 2001

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

R & D tax concession

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:

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
$15m $16m $8m $37m $62m

Compliance cost impact: Minimal.

Summary of regulation impact statement

Regulation impact on business

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.

Main points:

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.

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