Federal Budget FY21 – Summary of R&D Tax Announcements

October 6, 2020 by Ben Thompson

The Federal Budget for FY21 gave a glimmer of hope for industry-led research with an announcement of an additional $2B investment in the R&D Tax Incentive. Although this is off the back of (what I assume are now moot) proposed cuts of $1.8B to the programme which the Senate review committee was (is?) meant to present their findings in the next couple of days.

If it wasn’t for the pandemic and recession we wouldn’t have anything positive to be talking about with respect to R&D, so that’s something. If the Coalition hadn’t already made the position clear in chipping away at the R&D Tax Incentive since coming into power I’d be more optimistic than where we are now.

Budget papers contained the following key details on the R&D Tax Incentive:

  • For small companies, with aggregated annual turnover of <$20M, the refundable R&D tax offset is being set at 18.5 percentage points above the claimant’s company tax rate.
  • For larger companies, with aggregated annual turnover of >$20M, the Government will retain an intensity measure (as proposed in the mooted changes from FY20).

This means for FY21 the rate of R&D benefit for small companies will be 44.5% (R&D rate 18.5% + FY20 company tax rate 26%), and 43.5% for FY22 (based on company tax rate of 25%). This is nice, but it’s worth remembering that in FY16 the R&D was supported by a 45% refundable tax offset – so we’re still playing with less than we had. Hopefully this will mean we won’t continue our slide down the OECD rankings for investment in research and development in terms of %GDP per capita (but we won’t be climbing the ladder).

The previous Budget was costed on the basis of a $1.8B cut to the R&D Tax Incentive. Tonight’s announcement of a $2B investment tonight means we’ve got $200M extra to help dig us out of a COVID climate changing hole.

Naturally I will provide further update once further details on the FY21 Budget appear along with:

  • Detailed breakdown of the funding opportunities to manufacturers – which also have had big money thrown at them, but also with zero specifics given as yet
  • News once the Senate finally presents its findings on the current R&D Tax legislation will feed back that news too so we can finally have certainty on whether there will be retrospective changes to claims already submitted for FY21 (that pesky R&D rate reduction again)
  • Whether the ATO decides if JobKeeper monies are ineligible as an R&D deduction – which will also require retrospective amendment for any FY20 R&D Tax claims already submitted.
  • The new R&D Tax online portal application process for FY21 (not budget related – but definitely R&Dable)

Fun times.

Stay safe,

Source info: Budget Paper No. 2: Budget Measures