In the 2014/15 Budget the Government announced they would reduce the tax offset rate for the R&D Tax Incentive by 1.5%. This Bill was introduced in 2015 and has since been blocked by Labor and the cross benchers in the Senate.
But, over two years later, Labor has just announced if it wins the election it will pass this reduction to the rate of the offset.
And a timeline…
- When I first claimed the R&D concessions it was a 150% deduction for R&D expenditure – which at a 30% company tax rate is a 15% return on any R&D expenditure.
- It then got reduced to a 125% deduction for R&D expenditure – which at a 30% company tax rate is a 7.5% return on any R&D expenditure.
- It then got changes to, for the big end of town, a 40% tax offset, which at a 30% tax rate is a 10% return on any R&D expenditure.
- It then got capped to only $100 million of R&D expenditure per group per year.
- And now, irrespective of who wins the election, for the big end of town it will be a 38.5% tax offset, which at a 30% tax rate is an 8.5% return on R&D expenditure.
But it is worth remembering the policy for the 1.5% reduction in the 2014/15 budget was due to the company tax rate dropping by 1.5% to 28.5% for small businesses (which happened on 1 July 2015). If the Coalition wins the company tax rate for small businesses from 1 July 2016 will be 27.5%. So it is likely a coalition government will reduce the offset rate to by another 1%.
At its worst, the R&D Tax Concession was an uncapped 7.5% return of R&D expenditure. Soon it will be a capped 8.5% return on R&D expenditure, and there is a good chance it will drop again to a capped 7.5% return on R&D expenditure…
Around in circles we go.
FYI, for the small end of town, for companies with a turnover of less than $20 million, the current rate is an offset of 45% but this will reduce to 43.5%.