The Senate concluded today on a range of Research and Development (R&D) measures that were outstanding after the 2014-2015 Federal Budget.

In summary:

  1. A cap of $100 million has been introduced on amounts that can be claimed under the R&D Tax Incentive; and
  2. The proposed 1.5% R&D tax offset rate cut was opposed by the Senate and therefore did not pass.

The resolution of these outstanding matters is important as it provides companies with certainty on future R&D planning and benefits.

$100 Million Cap on Expenditure
For taxpayers with an income year beginning on or after 1 July 2014, eligible R&D expenditure will be capped at $100 million. R&D expenditure above this amount will be eligible for the tax offset at the income tax rate. There is a sunset clause of 1 July 2024.

1.5% R&D Tax Offset Rate Cut not proceeding
On 2 March 2015, the Senate rejected the R&D Tax Incentive rate cuts which were proposed in the 2014-2015 Federal Budget and this was accepted by both Houses.

The proposal sought to reduce the R&D tax offset rates by 1.5% to align the R&D tax incentive rates with a proposed decrease in the corporate tax rate.  

  • Whilst Grant Thornton is disappointed with any cuts, to innovation funding, we view the expenditure cap as a positive outlook compared to the original measure proposed. The original Bill would have completely excluded 15-20 of Australia’s largest innovating companies from accessing the R&D Tax Incentive. 
  • However, we consider that the $100 million expenditure cap could result in larger companies winding back their R&D activities and/or offshoring their R&D projects given that there is no additional incentives available. 
  • We consider the above rate cut rejection is good news for Australian companies with the tax offset rates remaining unchanged at 40% and 45%, depending on turnover. For companies accessing the refundable tax offset, the reduction in the rate would have meant a reduction in the amount of the refund.  

Also a reminder for all June year end companies that the deadline for the lodgement of the R&D Tax Incentive registration applications for the financial year ended 30 June 2014 is 30 April 2015.

Further Advance Findings for Overseas expenditure for expenditure incurred during the year ended 30 June 2015 also need to be lodged by 30 June 2015.