R&D Tax Incentive – Federal Budget 2021

8 October 2020

Dear Members – the following is a summary of the R&D Tax Incentive. 

Overall the news is good with the Federal Government enhancing some aspects of the RDTI, and not making changes that had been expected since 2019.

Lusia Guthrie, BioMelbourne Network’s Chair, said “The impact on support of businesses investing in growth is particularly good to see. The proposed changes are valuable for job growth, company growth and increases in Australia’s and Victoria’s manufacturing capability and capacity.”   She added:  “It is encouraging to see that the comments and concerns received from our Members, and provided to the RDTI Review, were heard.”

SUMMARY (our thanks to KPMG):

The Federal Government will enhance previously announced reforms to invest an additional $2 billion over the forward estimates period through the Research and Development Tax Incentive (RDTI). The Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 (the Bill) currently before the Senate Economic Legislation Committee will not proceed in its current form.

A full run down on the Budget can be found via this link to KPMG’s website.  This includes details on some of the new grant programs,  including the manufacturing initiative (more on that below), that are relevant to Members.

KEY POINTS – RDTI: 

1/ There will be no changes to the current RDTI until next year – that is, FY20 and FY21 claims will be unaffected by the Bill.

2/ The $4 million cap on RDTI refunds has been removed.

3/ The R&D benefit will be increased for income years commencing on or after 1 July 2021 and will support more than 11,400 companies:
a) For larger companies (annual aggregated turnover of $20 million or more), elements of the Bill will be kept, but instead of decreasing the benefit as originally proposed, the “R&D intensity measure” will provide the following levels of benefit:

Tier Intensity range Intensity premium
1 0-2% 8.5%
2 2%+ 16.5%

b) For smaller companies (annual aggregated turnover less than $20 million), the refundable R&D tax offset rate will be pegged at 18.5 percentage points above the corporate tax rate (instead of 13.5 percentage points) and there will be no cap on the annual cash refund.

4/ All other changes proposed in the current Bill, including the proposed increase in the annual cap from $100 million to $150 million in R&D expenditure, will be retained. This also means proposed changes in Schedules 2 (integrity measures including removing the residual benefit arising from clawback and feedstock adjustments) and Schedule 3 (administrative measures) will be implemented as part of the above reforms.

KEY POINTS – MANUFACTURING

The Treasurer announced that support for manufacturing will focus on themes of collaboration, translation and integration and will prioritise projects from a number of sectors including medical products.  Information from the Department of Industry, Science, Energy and Resources provides the following.

$1.5Bn Modern Manufacturing Strategy

The Strategy will help Australian manufacturers to:

  • scale-up
  • improve competitiveness
  • build more resilient supply chains

This is a part of the Government’s JobMaker plan, and “is designed to seize market growth opportunities based on our National Manufacturing Priorities.”

FOUR KEY INITIATIVES

Modern Manufacturing Initiative (MMI)

The MMI will invest $1.3 billion in large transformative projects. It will encourage private investment and build the scale, connections and capabilities of local manufacturers, allowing them to shift up the value chain and grow.

Supply Chain Resilience Initiative

This $107.2 million investment will allow us to better understand supply chains, identify gaps and take action to address them.

Manufacturing Modernisation Fund (MMF) round two

This $52.8 million investment builds on the popular and successful program to support transformative investments in manufacturing technologies and processes.

Road maps to recovery and beyond

We will facilitate expert industry-led teams to develop road maps against each of the National Manufacturing Priorities and work together to identify road blocks to growth.

AUSTRALIA’S MANUFACTURING GOALS

The Government’s intention is for Australia to be recognised as a high-quality and sustainable manufacturing nation. “We want to help deliver a strong, modern and resilient economy for all Australians. We aim to achieve this by 2030.”

In 2 years:

  • create a business environment to support manufacturing jobs and encourage new investment

In 5 years:

  • support a more industry-focused science and technology system
  • help to boost productivity, scale and competitiveness

In 10 years:

  • lock in productive and competitive firms with high-impact sectoral growth

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