The new R&D tax incentive is now a reality

On 24 August 2011 the bills putting into effect the new R&D tax incentive were passed by parliament and now await Royal Assent.

The new incentive has been backdated to 1 July 2011.

It is clear that the new system will be more generous compared to the existing system, however, the benefit may be eroded by the tightening of eligibility criteria for certain claimable costs.

Overview of the new R&D tax incentive
Companies with a group turnover of less than $20 million will be able to access a 45% refundable tax credit.  The tax credit will first offset existing tax debts with any excess to be refunded.

Companies that exceed the turnover threshold will be able to access a 40% non-refundable tax credit.  Any excess can be carried forward to offset against future tax liabilities.

Under the classification rules, R&D project activities will need to be classified as either ‘core’ or ‘supporting’ activities.  Supporting activities will be subject to a further ‘dominant purpose’ test which has the potential to eliminate those costs from the claim.

Further, there are rules dealing with ‘feedstock’ which has the potential to reduce the claimable costs by the value of certain marketable products created from the R&D activity.

IP held by a foreign resident
A feature of the new incentive is the relaxation of the Australian IP ownership requirement.  This will allow greater flexibility for multinational groups managing IP development and ownership on a global basis.  Its intent is to encourage global groups to use Australia as a research base.

Under the new incentive, multinational groups will be able to own IP offshore and still claim the 40% non-refundable tax credit for R&D activities performed in Australia.

Transitioning into the new R&D tax concession
Pre 1 July 2011 projects that continue into the new incentive will need to be managed appropriately to ensure continuing eligibility.

New record keeping processes will need to be designed to comply with the new classification requirements.

Briefing seminars
The Grant Thornton R&D Tax Incentive Team will be conducting briefing seminars in each of our offices.  Details will be sent out shortly, but click here to register your interest in attending.

Krish Patel
Partner - Tax
T  +61 2 8297 2400
E  krish.patel@au.gt.com

Mark Azzopardi
National Head of Tax
T  +61 3 8663 6200
E  mark.azzopardi@au.gt.com