• If an entity’s aggregated turnover is less than $20 million and it is not controlled by any exempt entities, then the company can claim the refundable tax offset.
  • The refundable tax offset rate is equal to the company’s corporate tax rate plus an additional premium rate of 18.5%.
• If an entity’s aggregated turnover is $20 million or more, or it is controlled by exempt entities, then the company can claim the non-refundable tax offset.
  • The non-refundable tax offset rate is equal to the company’s corporate tax rate plus an additional premium rate of 8.5% or 16.5% depending on R&D Intensity.

A series of rules apply to group and include turnover of entities deemed connected or affiliated, and also for the determination of which transactions are included as turnover.

The original rationale for having a two tiered system is probably (and fairly) that:

• Small companies require a greater level of support for their R&D Activity than larger entities;
• Small companies require cash refundability of R&D Tax Offsets (in exchange for forgone future tax losses) as they require precious capital to fund future operations or ongoing R&D Activity in their early or pre-revenue stages. Whereas larger companies do not require the cash refundability to the same extent, since if they have aggregated turnover in excess of $20 million and could fund their R&D Activities from their established commercial operations;

The problem we now see however is that the $20 million turnover threshold was established at the outset of the R&D Tax Incentive in FY12 (more than a decade ago) and what the policy intended to define as a small business is in FY12 is different to that in FY23. The $20 million turnover threshold has not changed or increased during this time.

We have anecdotally noticed many companies now slightly breach the $20 million threshold over the past year from growth and possibly the high inflation environment, rendering them no longer eligible for the Refundable R&D Tax Offset.

Whilst the growth of such companies should be celebrated, and can in cases be partly attributed to their use of the R&D Tax Incentive as a capital source, going suddenly from a refundable R&D tax offset to a non-refundable tax offset can present an abrupt financing crunch.

Would it not be reasonable to extend the threshold to an increased amount to allow for inflation to a figure of say $25 million, or a number determined based on CPI and linked back to the original commencement of the R&D Tax Incentive?

As the $20 million turnover threshold for eligibility to the refundable R&D tax offset is embedded within the tax law, such a move would require the passing of legislation.

Possibly something for the policy makers to consider and we plan on raising this where we can.

The post Should policy makers be considering an increase to the $20 million turnover threshold re: eligibility for the Refundable R&D Tax offset? first appeared on Swanson Reed.