Australia: R&D tax benefits “reloaded”
Australia: R&D tax benefits “reloaded”
The federal budget confirmed strong support for Australia’s research and development (R&D) tax incentive to foster innovation spending and to help stimulate the economy.
Prior to the budget, proposed amendments to the R&D tax incentive would have reduced the support provided by the program by $1.8 billion* over four years. Industry had been seeking for many years to prevent the government from making these changes on the basis that it was going to put a handbrake on R&D investment in Australia and, in some cases, force companies to go offshore to seek more support. The budget confirms that the government will invest heavily in developing sovereign capability across the research, manufacturing and energy sectors to help businesses grow.
The revised R&D tax incentive applies for years of income commencing on or after 1 July 2021.
- Companies with annual aggregated turnover of less than $20 million will be able to access a refundable offset pegged at 18.5 percentage points above the corporate tax rate, which from 1 July 2021 will be 25% providing a 43.5% refundable tax offset. There will be no cap on the refundable tax offset.
- Companies with an annual aggregated turnover of $20 million or more will have a two-tiered R&D intensity (R&D spend compared to total business expense) framework providing a premium intensity benefit of 8.5% above the corporate tax rate for R&D intensities up to 2%, and 16.5% above the corporate tax rate for R&D intensities above 2%.
Other application and compliance aspects of the current program continue in their present form, meaning companies can now enjoy a level of certainty regarding their future investment in R&D.
Modern manufacturing strategy
The government also announced as part of the budget its Modern Manufacturing Strategy (MMS), a $1.5 billion program designed to strengthen Australia’s manufacturing capability across a range of key sectors. A number of funding streams will be available under the MMS, addressing issues such as supply chain resilience, manufacturing modernisation, collaboration, translation and integration.
This new funding announcement, combined with low interest rates and the instant asset write-off measures announced as part of the budget, is expected to give manufacturing businesses greater confidence to consider investing in a broad range of growth activities, including R&D, if they take advantage of the support on offer. However, access to grant programs is likely to remain highly competitive.
Eligibility criteria and compliance requirements
Access to government funding needs to be approached in a strategic fashion. While programs like the R&D tax incentive are based on self-assessment, there are strict eligibility and compliance requirements that need to be met. AusIndustry and the Australian Tax Office (ATO) are active in enforcing these requirements by conducting reviews of claims that can go back a number of years. Both regulators have increased the level of transparency around their assessment frameworks so claimants need to be more aware of particular risk areas and concerns for the regulators. However, when it comes to fast-moving R&D programs, staying on top of the necessary detail can be challenging.
Grant programs, on the other hand, are merit based and typically highly competitive with many applicants seeking funds. They require a strong, whole-of-business investment case to be successful. Almost without doubt, the chance of success will be reduced if businesses fare caught simply reacting to the announcement of a grant program for which they only have four to six weeks to prepare and file an application. Businesses need to be better prepared for what may be a significant financial request.
R&D tax incentive claims need to be prepared on a real-time, concurrent basis to capture the right activity and costing information, at the right time. This allows for eligibility criteria to be addressed when it counts, so that businesses are not caught short when AusIndustry or the ATO conduct a review. During this challenging economic period, businesses can least afford to be repaying any of their previously claimed R&D benefits, so need to consider what their compliance obligations are.
Preparing a successful grant application requires a sound understanding of government policy as it relates to business, the industry sector or region in which a company operates. Government funding measures are designed to help facilitate particular policy outcomes. The task of preparing a strong application is therefore more challenging if a business does not understand or address the government’s priorities.
Businesses need to be well informed and appropriately prepared so that an application for funding presents a suitably targeted, fully developed and policy-aligned case for support. There are also many different funding options available. Businesses that are well prepared, and knowledgeable of desired outcomes, can expect to face a better chance at success in accessing grants.
For more information, contact a KPMG tax professional in Australia:
Alex Demetriou | +61 8 8236 3233 | firstname.lastname@example.org
Kristina Kipper | +61 2 9335 7847 | email@example.com
Ramanie Naidoo | +61 7 3225 6988 | firstname.lastname@example.org
David Gelb | +61 3 9288 6160 | email@example.com
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