2018-19 Federal Budget Report: R&D, Innovation and Incentives

In line with pre-Budget expectations the R&D tax incentive will be amended to support companies with a higher proportion of R&D spend, whilst adding additional integrity measures. The changes will apply to income years starting on or after 1 July 2018.

What was announced

  • Introduction of an incremental R&D premium for entities with turnover >$20 million
  • $4 million annual cap of refundable R&D tax offsets and limiting the net benefit to 13.5%
  • Maximum R&D expenditure threshold increased from $100 million to $150 million
  • Greater enforcement activity by the ATO, including public disclosures about taxpayer R&D expenditure
  • Increased funding to support the Australian Technology and Science Growth Plan

Changes to the R&D tax incentive

For eligible R&D entities with a turnover of $20 million or more, the Government is introducing an R&D premium that ties the rate of non-refundable R&D tax offset to the proportion of R&D expenditure for each year as follows:

R&D premium
(calculated as relevant % plus claimant’s company tax rate)
R&D expenditure as a proportion of total annual expenditure
4% 0 to 2%
6.5% >2% to 5%
9% >5% to 10%
12.5% >10%

For eligible R&D entities with turnover less than $20 million, the R&D offset will be the claimant’s company tax rate plus a 13.5% premium, resulting in a decrease from the current 16% applying to base rate entities. Cash refunds will now be capped at $4 million per annum. R&D tax offsets which cannot be refunded are to be carried forward as non-refundable R&D tax offsets for use in future income years.

The maximum R&D expenditure threshold will be increased from $100 million to $150 million per annum.

Increasing the integrity of the R&D tax incentive

The Government will implement stronger compliance and administration improvements through additional resourcing for the ATO and the Department of Industry, Innovation and Science. This is expected to increase enforcement activity and also provide improved program guidance.

Other changes include greater transparency, with the ATO given powers to publicly disclose R&D claimant details including R&D expenditure, a limit on time extensions to complete R&D registrations, and technical amendments regarding the feedstock, claw-back and anti-avoidance rules.

Jobs and Innovation

  • In addition to the R&D tax incentive changes, the Government has announced a number of measures to support the Australian Technology and Science Growth Plan, including:
  • Better tracking of innovation data;
  • Greater funding to improve the delivery of positioning, navigation and timing data to support Australian business and regional Australians;
  • Modernisation of IP Australia’s patent management system to support Australian businesses to protect their IP;
  • $20 million of funding over four years to support Australian innovation in Asia under the Asian Innovation Strategy;
  • A further $20 million of funding to establish a Small and Medium Enterprises Export Hubs program to help Australian businesses increase their export capabilities; and
  • $1.3 billion to be provided over 10 years to cement Australia’s position as a global leader in medical technology, biotechnology and pharmaceuticals.