Question:
New R&D laws: cash rebates for small businesses
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
New laws cleared Parliament in August. These provide a 45% refundable tax offset for businesses with group turnover less than $20 million undertaking research and development activities that meet the new eligibility criteria. A nonrefundable 40% offset is available for larger businesses including the Australian subsidiary of a foreign multinational that holds its intellectual property offshore.
There is no monetary limit to the total R&D expenditure that can be subject to the offset, however, there is a complicated new criterion for core R&D activities. These are defined as:
Experimental activities where the outcome is not known or cannot be determined in advance on the basis of current knowledge, information or experience, but can only be
determined by applying a systematic progression of work that:
+ is based on principles of established science;
+ evolves from hypothesis, to experiment, to observation/evaluation, and leads to logical conclusions;
+ are conducted for the purpose of generating new knowledge (including knowledge about the creation of new or improved materials, products, devices, processes or services).
Sounds like a Year 7 science textbook!
Where company overheads are not considered to be core R&D expenditure they may be eligible for the offset if they meet the criteria for supporting R&D activities. Supporting R&D activities have a dominant purpose of supporting core R&D activities.
The term dominant purpose means the prevailing almost influential purpose, recognising that activities can be conducted for more than one purpose… The fact that certain activities are necessary for core R&D to occur is not sufficient to show those activities are undertaken for the dominant purpose of supporting core R&D. It will be important to substantiate that dominant purpose.
As a result of an amendment sponsored by the Greens, from July 2014 R&D businesses will be able to claim their refundable offsets on a quarterly basis.
The new aggregated turnover test (below $20 million you can access the refundable cash rebate) will now include all connected entities with common control of 40% or greater.
Subject to approval by AusIndustry, R&D businesses can have up to 50% of the research and development undertaken overseas if the relevant capabilities are not available in Australia.
The new offsets are available from July 2011 and the system continues to operate on a self-assessment model although it is no longer required that you must have an R&D plan.
Registration must be made within 10 months at the end of the relevant financial year. In a consolidated group, only the head company needs to register. A four-year amendment period will apply in a similar way to other tax rules.
Division 355 of 97 Tax Act, WTB 1370, 1388, Financial Review, 6 September 2011, p 40, 24 August 2011, p 11
