Bill to increase R&D benefit (for some companies) | KPMG | AU

Bill to increase R&D benefit (for some companies)

Bill to increase R&D benefit (for some companies)

Georgia King-Siem outlines two potential benefits for small and medium size enterprises if legislation to reduce the corporate tax rate is passed by Parliament.

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On 27 March 2017, the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 passed the House of Representatives and will now move to the Senate for consideration. The Bill contains a number of proposed measures to reduce the corporate tax rate in Australia. While the Bill may stall in the Senate (at least in its current form), it is still timely to reflect on two measures within it which, for Australia’s small to mediums sized companies (SMEs), would come as a nice surprise.If passed in its current form, for income years beginning on or after 1 July 2016 (FY17), the Bill will:

  • reduce the corporate tax rate from 28.5 percent to 27.5 percent for corporate tax entities that are small business entities (see Schedule 1)
  • increase the aggregated turnover threshold for access to small business tax concessions to $10 million (see Schedule 3).

The Bill does not make any changes to the Research and Development (R&D) Tax Incentive itself, but due to the way the R&D tax offset works, these two changes will both increase the permanent tax benefit (PTB) obtained under the R&D Tax Incentive for small business and increase the number of R&D entities that the increase applies to. Specifically:

  • the reduction to the small business corporate tax rate will increase the PTB for current small business claimants from 15 to 16 percent (an increase of just over 6.3 percent)
  • the increase to the aggregated turnover threshold for small business will increase the PTB for a number of SMEs from 13.5 to 16 percent (an increase of about 15 percent).

The Bill also proposes to reduce the corporate tax rate further in future years and for larger businesses, but it is the changes above that will have a direct impact on SME’s accessing the R&D Tax Incentive this year. As an indication of the magnitude of this change, Government estimates an additional 90,000 to 100,000 businesses will qualify as ‘small business’ (Explanatory Memorandum, para 3.6).

Of course most of these are not accessing the R&D Tax Incentive, but for those that are, this will be a welcome benefit enacted.

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