The 2019 Budget Impact on R & D Grants
Today we chatted with Dennis Alemis, of Bisgro Consulting Pty Ltd, a specialist in the field of R & D Grants, and asked him to summarize the impact of the 2019 budget – and here is his response –
Importantly please note that the recent proposed changes to the R&D Scheme have not passed through the Senate & are under review meaning the current more beneficial benefits will most likely remain in place for at least 18/19, see rates at the end of the article.
- An additional $1B is allocated to the Tax Office Tax Avoidance Taskforce for 4 years starting July 2019 targeting multinationals, large public and private groups, trusts and high wealth individuals (not small business). This is expected to raise an additional $3.6B over the 4 year period.
- An additional $42.1M is allocated to the Tax Office for 4 years starting July 2019 targeting the recovery of unpaid tax and superannuation liabilities from big business. This is expected to raise an additional $104M over the 4 year period.
Instant asset write-off scheme:
- The instant asset write-off will increase to $30k & will be expanded from businesses with a turnover under $10M to those with under $50M.
- Businesses will be able to claim the write-off every time an asset under the cap is purchased through to the new cut off on 30 June 2020.
- This is an extension to the announcement in January where the threshold increased from $20k to $25k, this is yet to be legislated & is being considered today in the Senate.
- If legislated, businesses can claim assets “first used or installed ready to use”:
- between 29 January 2019 to 7.30pm budget night (2 April 2019) under the $25k cap &
- from 7.30pm budget night (2 April 2019) to 30 June 2020 under the $30k cap.
Export market promotion:
- Additional funds for export promotion & marketing activities of $60M from 1 July 2019 to 30 June 2022 under the EMDG Scheme to help SME’s promote their products, EMDG now provides total annual grants of $157.9M
- $3.9M was also allocated to establish an Australian Trade and Defence Office in Israel
- $50M over 3 years for a National Tourism Icons Program for tourism infrastructure and upgrades
Several new or extended measures are proposed including:
- $1.2B has been allocated to Australia’s Medical Research Investment Plan to support commercialisation projects. This includes:
- $311.3M for medical research commercialisation specifically by the government
- $400M to the Genomics Health Futures Mission to “transition great ideas through to proof-of-concept and beyond”
- $171M to the Adelaide City Deal for Australia’s space industry, including $6M for a Mission Control Centre to support space start-ups & for conducting research & education
- $3.4M to support women in STEM, and includes investment in the Science in Australia Gender Equity (SAGE) initiative led by the Australian Academy of Science and the Australian Academy of Technology and Engineering.
- $25M for coastal, environment and climate research
- $56M for nuclear medicine and waste management
- $5M for a dark matter particle research facility
- $15M for expanded outreach and education activities through Questacon
- $19.5M over 4 years to establish a Space Infrastructure Fund
Several cuts have been proposed including:
- Abolishing the $3.9B Education Investment Fund, with its funding reallocated to a new Emergency Response Fund
- $389M in cuts over 4 years to future allocations to university research, the CSIRO and Australia’s research grant programs including reductions of $6.73M to ARC research funding, $16.54M to the National Collaborative Research Infrastructure Scheme (NCRIS) & $21.5M to CSIRO
The government had proposed several changes for the R&D Tax Incentive Scheme from 1 July 2018, however these have not yet been legislated and it is unlikely they will be before this financial year ends, so it is expected the current tax benefits will remain in place. The proposed legislation had been released as part of the Omnibus Bill targeting multinationals and with the final sitting day for the Senate today this will not pass. The government is re-considering its position on the R&D based on recommendations from the Senate Economics Legislation Committee.
The proposed R&D changes would see Australia’s support level fall below that of other Western countries including the USA, UK, Germany, Canada and Singapore.
Companies with a turnover below $20M:
- Entities receive a 43.5% refundable tax offset (cash payment) in lieu of a tax deduction on that expenditure. With a corporate tax rate of 27.5% this delivers an after tax benefit of 16% (43.5% - 27.5%)
- For example $200k in R&D costs = $87k refundable tax offset ($200k x $0.435).
- Where a tax-exempt controls the applicant (more than 50% of the shareholding etc), the applicant can only claim the non-refundable 38.5% tax offset – discussed below.
- The refundable R&D tax offset will be set at a premium of 13.5% above the company’s tax rate. This results in a refundable offset of 41% (i.e. 27.5% + 13.5%), as opposed to 43.5%.
- The refundable offset amount will be capped at $4M. Amounts in excess of the cap will be non-refundable tax offsets reducing tax payable when the company is profitable, they can be carried forward into future years if not used in the current year.
- Clinical trials will be excluded from the $4M cap.
Companies with a turnover over $20M:
- Entities receive a non-refundable 38.5% tax offset that reduces tax payable.
- Any unused R&D Tax Offset amounts are carried forward to future income years.
- For example $200k in R&D cost = $77k non-refundable tax offset ($200k x $0.385).
- The non-refundable tax offset (reducing tax payable) will be linked to the incremental intensity of the entity (R&D expenditure as a proportion of total expenditure for the year). The non-refundable tax offset will be based on the company’s tax rate and the additional component(s) below:
- 4% for R&D expenditure between 0% to 2% of R&D intensity
- 6.5% for R&D expenditure between 2% to 5% of R&D intensity
- 9% for R&D expenditure between 5% to 10% of R&D intensity
- 12.5% for R&D expenditure above 10% of R&D intensity
Dereen Wallace, Partner
MBA Business Solutions