Third Time May Be Charm for Australia R&D Incentives

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

Aug. 31 — The Australian government introduced a bill that marks its third attempt to reduce tax incentives for corporate investment in research and development. This time it is likely to succeed.

The reductions form part of a Budget Savings (Omnibus) Bill that would, if passed, deliver savings totaling A$6.1 billion ($4.59 billion) between now and the 2019-20 financial year.

The savings would be delivered through 24 measures ranging from renewable energy spending cuts to reduced expenditure on student scholarships.

The lower R&D tax offset rates would contribute A$600 million ($496 million) to the total figure.

For eligible entities with turnover of A$20 million ($15 million) or more, the bill would reduce the refundable tax offset for the first A$100 million ($75 million) of eligible expenditure to 38.5 percent of their R&D spending, down from the existing rate of 40 percent.

Entities with a turnover below A$20 million would receive a tax offset of 43.5 percent for the first A$100 million of expenditure, down from the existing rate of 45 percent.

The R&D tax offset rate would continue to match the company tax rate of 30 percent for that portion of an entity's notional R&D deductions that exceeds A$100 million in an income year.

The changes would apply with effect from July 1 this year.

Corporations Eligible

The R&D tax offset is available to corporations that are Australian residents, or foreign corporations that are resident of a country with which Australia has a double tax agreement and that carry on business through a permanent establishment in Australia, or public trading trusts with a corporate trustee.

The federal government previously attempted to reduce the incentives in omnibus tax legislation introduced in 2014 and 2015, but didn't gain the support of the Labor opposition.

However, in the lead-up to the July 2 federal election that returned the Malcolm Turnbull-led Coalition government to office, the Labor Party said it would support the cuts to the R&D offset rates.

Consequently, unless the bill founders due to conflict over the other savings measures it contains, the R&D offset rates will be reduced.

The R&D tax offset regime is separately undergoing review by the Department of Industry, in fulfilment of a commitment made as part of a national innovation and science agenda released in December 2015.

Cost Climbs

An issues paper released as part of the review noted that the budget cost of the R&D tax incentive “has risen strongly over the past decade,” and has been significantly above forecast levels.

In its June announcement backing the Coalition move to reduce the offset rate, Labor said it would examine findings from the review to see if there are “more appropriate options” to amend the R&D Tax Incentive to achieve budget savings.

To contact the reporter responsible for this story: Murray Griffin in Melbourne at

To contact the editor responsible for this story: Rita McWilliams at

For More Information

The Budget Savings (Omnibus) Bill 2016 and an explanatory memorandum are available at;query=Id%3A%22legislation%2Fbillhome%2Fr5707%22.

Details of the review of the R&D tax incentive scheme are available at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax