Proposed changes to the R&D Tax Incentive
Key points:
- Government reforms to the R&D Tax Incentive have stalled in the Senate
- Protection for R&D incentives for clinical trials are critical
On 8 May 2018, the Government announced reforms to the Research and Development Tax Incentive (R&DTI) to better target the program and improve its integrity and fiscal affordability in response to the recommendations of the 2016 Review of the R&D Tax Incentive.
The R&D Tax Incentive was introduced in 2011, replacing the R&D Tax Concession, R&D Tax Offset, and the associated Incremental Premium and International Premium Concession systems. It provides a tax offset to encourage companies to engage in R&D and product development.
As a result of the Review, from 1 July 2018, key changes to the Incentive include:
- permanently increase the research and development (R&D) expenditure threshold from $100 million to $150 million;
- R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium.;
- cap the refundability of the R&D tax offset at $4 million per annum.
- R&D entities with aggregated turnover of $20 million or more are entitled to an R&D tax offset equal to their corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure.
Importantly, Government has recognised the critical role of R&D expenditure on clinical trials to develop life changing medicines and medical devices and as a consequence, has exempted capping refunds on clinical trial expenditure to $4 million as per the recommendation from the Review.
Mid-February 2019, the Senate Economics Legislation Committee released its report on the proposed changes to the R&D Tax Incentive legislation. The Committee recommended that the Senate defer consideration of the Bill until further analysis of the impact of some of the proposed reforms, particularly that:
- the approach to the cap on the refundable portion of the Research and Development (R&D) tax incentive is refined, and
- the formula for R&D intensity is refined, noting inherent differences in R&D intensity across industries and impacts on businesses with large operating costs.
MTAA has been advocating together with other peak bodies involved in research and clinical trials to Government to ensure that reforms are implemented and legislated in a way which that supports the health and medical industry to deliver jobs, growth and better health for all Australians.
See the Joint statement on the Research & Development Tax Incentive by industry peak bodies in April 2017.
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