Federal Budget 2015: R&D Tax Incentive increase for small business

R&D Tax Incentive increase for small business

David Gelb analyses the implications of the 2015 Federal Budget for the R&D Tax Incentive.

Global Head R&D Tax Incentives

KPMG Australia

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The last Federal Budget saw a proposal to cut the R&D Tax Incentive, Australia’s key program to support innovation by business, by 1.5 percentage points. The Federal Budget 2015 includes a proposal to reduce the corporate tax rate for small business by 1.5 percentage points for the 2015-16 income year. This reduction is not mirrored by a corresponding reduction to the R&D tax offset rate, meaning the permanent tax benefit for small companies will increase from 15 to 16.5 percent.

Last year’s proposed measure, as well as the Bill to exclude companies with assessable income over $20 billion, did not come to pass. Instead we saw the introduction of a $100 million cap on R&D expenditure, effective from 1 July 2014. Indeed, the $100 million cap may have forestalled further cuts to the tax offset in tonight’s Budget.

It should be noted that the Government is considering further R&D reforms to better support innovation in Australia through the recently released Re:think Tax discussion paper.

At present, Australia lags behind many other countries in terms of its support for innovation; see recent Organisation for Economic Co-operation and Development (OECD) reports on business expenditure on R&D (BERD) and government funding for business R&D. Submissions to the Re:think Tax discussion paper will help steer future policy and hopefully ensure Australia becomes a destination for innovation rather than a point of departure.

Companies interested in making a submission should do so and where further information is required, please call one of our R&D Tax specialists.

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