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R&D Tax Credit Reform

From 1 July 2010, the Government will replace the R&D Tax Concession with a simplified R&D Tax Credit reform to provide greater incentives for businesses to invest in Research and Development. Under this system, firms will be provided with a tax credit increase of up to 7.5% on that which is available under the existing arrangement.

Firms with an annual turnover of $20 million or less will be entitled to a 45% refundable tax credit (offset), allowing firms to receive a direct tax refund of 45% of their R&D spending when they file their tax returns – equivalent to a tax deduction of 150%. The Government assesses this reform as benefiting approximately 5,500 small firms.

Accordingly, firms with a turnover of over $20 million will be entitled to a 40% non-refundable tax credit, which is equivalent to a tax concession of 133%. This non-refundable tax credit will also be available for those companies undertaking R&D in Australia and which have intellectual property held offshore.

As a transitional measure, the R&D expenditure cap during the 2009-2010 income year will be lifted from $1 million to $2 million. R&D expenditure exceeding this amount will preclude a firm from eligibility for the Tax Offset. The introduction of the new system will see the Government impose no such cap from the commencement of the 2010-2011 income year.

The new Tax Credit system will also tighten the eligibility criteria for what is deemed to be related to R&D, ensuring that only genuine R&D expenditure is given due consideration. Furthermore, in an attempt to simplify the system, the Premium Concession and International Premium will both be abolished.