Announced in the Federal Budget last night was the Government’s plan to raise over $1 Billion by cutting funding to the R&D Tax Incentive and a range of grants. The savings from these measures will be redirected to repair the Budget and fund policy priorities.

Proposed Reduction to the R&D Tax Incentive

The R&D Tax Incentive operates whereby a company forfeits a general income tax deduction for their R&D expenditure in exchange for a turnover determined R&D Tax Offset. The permanent tax benefit of the R&D Tax Offset is calculated as the difference between the R&D Tax Offset rate and additional income tax payable on the general deduction foregone (with small companies able to use tax losses to receive a refund of their R&D Tax Offsets).

The Government has committed to decrease the refundable and non‑refundable R&D Tax Offsets by 1.5 percentage points from 1 July 2014 . The reduction is expected to save $550 million in payments over four years.

For the complete SwansonReed blog on the understanding of the impact of the proposed changes to the R&D Tax offset click here.

Click here to read the 2014-2015 Budget commentary regarding the R&D tax cuts.