Government Financial Incentives - Innovation and Exports
The 2009/2010 Federal Budget has included a raft of new industry assistance initiatives, providing a major funding boost to several industry assistance programs. This includes a major revamp of the R&D tax concession and establishment of the Commonwealth Commercialisation Institute. A much needed increase in funding for 2008/09 Export Grant recipients was also announced.
1. Revamped R&D Tax Concession
In line with many of the recommendations of the Cutler Review of innovation assistance, the R&D tax concession will be revamped into an R&D Tax Credit, effective from 1 July 2010. For companies with turnover less than $20M, a refundable tax credit of 45% will apply, allowing tax loss companies to recoup the R&D assistance. For companies with turnover greater than $20M, a non-refundable tax credit of 40% will apply. The 40% rate of credit is also to apply to "overseas owned" R&D activity carried on in Australia.
The 40% and 45% R&D tax credits equate to concessional deductions of 133% and 150%. This means that for the vast majority of R&D tax concession recipients, the effective rate of assistance will be doubled from 7.5 to 15 cents in the dollar from 1 July 2010.
Of major importance to technology companies is that there is to be no R&D expenditure threshold limit to which the R&D tax credit will apply. Accordingly, the announced changes constitute a major underwriting of new technology business innovation expenditure from 2010 onwards.
Transitional provisions will apply which are also favourable to small tax loss companies carrying on R&D activities. Under the existing R&D Tax Offset provisions, only companies with R&D expenditure under $1M can elect the R&D Offset funding in lieu of R&D tax deductions. For the 2009/10 year, the R&D expenditure threshold will be increased to $2M, expanding the number of companies able to make the R&D Offset election.
Also announced in the Budget is a program to eliminate the unlimited time period available to the Australian Taxation Office to amend assessments in certain circumstances. This unlimited period for adjusting assessments to increase tax liability due to the R&D tax concession currently applies and it would be a reassuring outcome for claimants if this provision was encompassed within the intended changes.
On the downside, the 175% premium rate of deduction will be abolished. This will disadvantage long term R&D tax claimants with increasing levels of R&D spend and also the limited number of claimants who received the 175% premium deduction in respect of overseas owned R&D carried on in Australia.
More ominous is the announcement of yet another attempt to tighten the definition of R&D for tax purposes to limit the tax concession to "genuine R&D". The Government announced a consultation paper to be released in the coming months to address the definitional issue.
2. Discretionary Innovation Assistance – Commonwealth Commercialisation Institute
The Government will spend almost $200M establishing the Commonwealth Commercialisation Institute. The institute will support both public and private sector technology developments in a bid to increase the rate of commercial success arising from Australian developed technology. Little detail is available and it is uncertain as to the extent to which the funding will replace or restore industry discretionary R&D funding reduced through the closing of the Commercial Ready program.
3. Discretionary Environmental Programs
Significant new funding initiatives were announced in industry specific assistance measures, particularly in the area of renewable energy and greenhouse gas abatement, with major investments in low emission coal technology, solar power and established renewable energy in Australia to support new technology research and commercialisation.
4. Export Incentives
The Government has announced an additional $50M allocation for Export Market Development Grant recipients in the 2008/09 year. Grant recipients with a grant entitlement exceeding $40K were facing a payout factor of approx. 30 cents in the dollar due to short funding of the scheme. The $50M additional funding will be distributed before the end of June and will ensure that grant recipients receive a 100% payout on grants up to the maximum $150K entitlement.
