The Government has announced reforms to Australia’s Research and Development Tax Incentive (R&DTI), aimed at simplifying the regime and better targeting Government support.
What is changing?
The Good
Several of the reforms are designed to increase support for businesses undertaking genuine R&D activities and improve access for a broader range of companies.
Key positive changes include:
- Increasing the offset for core R&D expenditure by around 25% to 50%, through a 4.5 percentage point increase in core R&D offset rates;
- Reducing the intensity threshold from 2% to 1.5%;
- Increasing the turnover threshold for the highest offset rate from $20 million to $50 million; and
- Lifting the maximum R&DTI expenditure threshold from $150 million to $200 million.
The Bad
Some reforms may reduce the overall benefit available to businesses or limit access to refundable incentives.
These changes include:
- For firms below the $50 million turnover threshold, limiting refundability to firms under 10 years of age; and
- Lifting the minimum expenditure threshold from $20,000 to $50,000, with research activities valued below this amount required to be undertaken with a registered Research Service Provider or Cooperative Research Centre to be eligible for the R&DTI.
The Ugly
The most significant concern for many businesses is the removal of supporting R&D expenditure from eligibility under the R&DTI.
Supporting activities often form a critical part of the broader R&D process and removing their eligibility could substantially reduce the value of future claims and increase the complexity of structuring and documenting projects.
When do the changes apply?
The R&DTI reforms are proposed to commence from 1 July 2028.
Insights
These reforms may have significant implications for businesses currently accessing or intending to access the R&DTI. Businesses may need to reassess:
- which activities and expenditure continue to qualify for the R&DTI;
- the structure and documentation of existing claims;
- eligibility for refundable versus non-refundable offsets; and
- whether collaboration with registered research providers may be required.
Businesses should begin considering the potential implications of the changes now, particularly where long-term R&D programs, funding arrangements or investment decisions may be affected.
If you want to know more about how these changes may impact you, please do not hesitate to reach out to your trusted Hall Chadwick advisor to find out more.
