Posted By: R&D SmartTax

The current R&D Tax Concession and R&D Tax Offset programs are being replaced by a new R&D incentive program driven through the tax system called the R&D Tax Credit.

Slated to commence on 1 July 2010, the start date and its final form are now in doubt due to the legislation not making it through the last sitting of parliament before the call of the Federal Election on 21 August 2010. As a result it is now unclear as to whether the new R&D Tax Credit will commence on 1 July 2010 or 1 July 2011. This will become clearer once the Federal Election is over.

Features considered beneficial to small businesses include:

  • an increase from 37.5% to a 45% tax credit
  • definition of small businesses expanded to include any company with a group turnover less than $20 million
  • no upper limit on R&D expenditure to be claimed
  • decoupling of benefit from the company tax rate meaning that if company taxes decrease, the R&D benefit won’t
  • increase of ownership threshold from tax exempt entities from 25% to 50%
  • availability of tax credit to entities whose intellectual property resides overseas

However there are a number of proposed features that are less desirable for many small businesses including:

  • change of eligibility definitions away from the well known and understood definition used by thousands of businesses over the past 25 years
  • creation of a new requirement to allocate all activities between core and supporting
  • supporting activities to receive no support where there is any commercial purpose to the activity
  • many activities currently supported are no longer eligible

As an incentive to encourage small businesses to undertake innovative and risky activities, it is vital that the new R&D Tax Credit continues to support the critical development and trialling activities that are essential to prove commercial viability of new designs. Small businesses cannot afford to set up separate R&D departments and this means the only way innovative activity occurs is within a commercial environment and almost certainly with a customer in mind.

Thus when debate resumes about the new R&D Tax Credit, there will be plenty of pressure on the prevailing government to make changes to the way the legislation is currently drafted and to restore support for small business.

About R&DSmartTax

R&D SmartTax tools were born out of a desire to help the many smart small Australian companies access the R&D Tax Break benefits without the need for hours spent reading tax literature or expensive consultant fees. The R&D Eligibility Wizard is designed to be low cost, easy to use and available for all Australian industries.

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