Federal Budget 2020-21 | Innovative businesses benefit from greater certainty on future of R&D tax incentive

The government’s decision to abandon reforms to the research and development tax incentive (RDTI) regime was one of the key announcements revealed in the 2020-21 Federal Budget this week.

The controversial R&D Tax incentive Bill, which proposed $1.8 billion in cuts to the RDTI scheme over four years from the 2019-20 Financial Year, has been the subject of much industry and political debate, including numerous parliamentary inquiries over the last two years. The Budget announcement comes one week before the Senate Economics Legislation Committee is due to hand down its final report on the Bill.

There is no question that the Federal Budget announcement will be a welcome relief, particularly for early stage and fast growth companies seeking clarity and certainty in relation to the way in which the regime supports ongoing R&D investment within their businesses. These are the very companies that will be the future of employment and economic growth for our nation – so providing certainty and stability to those businesses will serve Australia well in the long-term.

The Australian Investment Council was the first voice to Government (back on 5 March 2020) recommending that the planned reforms be halted. From the first impacts of the global pandemic earlier this year, the Council believed that the introduction of restrictions would disincentivise businesses from investing in R&D at a time when we needed them to do more, rather than less.

“It’s pleasing to see that the Government has accepted that advice and decided not to proceed with the previously announced reforms,” Yasser El-Ansary, the Council’s Chief Executive said on Budget night.

In his Budget speech, Treasurer, Josh Frydenberg cited: “Research and Development, the adoption of digital technology, and affordable and reliable energy will be critical to Australia’s future economic prosperity.”

He revealed that the Government will also enhance previously announced reforms to invest an additional $2 billion to improve the benefits of the RDTI program.

For small companies, with total annual turnovers of less than AU$20 million, the refundable R&D tax offset will be set at 18.5 percentage points above a company's tax rate, and the AU$4 million cap on annual cash refunds will not proceed, meaning no restrictions on access to refundable credits (as is the case with the current regime).

Meanwhile, for larger firms, with annual turnovers of AU$20 million or more, the government said it will reduce the number of intensity tiers from three to two.

The changes will commence on 1 July 2021.

Read more about the Australian Investment Council’s analysis of the 2020-21 Federal Budget.