A second Exposure Draft of the Legislation and Explanatory Materials (EM) was released on 31 March. The legislation and the EM can be found on the Treasury website.

Description: The new R&D Tax Credit is a broad-based and market driven incentive package.  The two core components of the package are:

• a 45 per cent refundable tax credit (the equivalent to a 150 per cent concession) for companies with an aggregated turnover of less than $20 million per annum;
• a 40 per cent standard tax credit (the equivalent of a 133 per cent deduction).

The new tax credit is decoupled from the corporate tax rate and thereby creates certainty in the level of assistance to be provided.  Firms undertaking R&D in Australia, where the intellectual property is owned overseas, will be eligible for the R&D Tax Credit.

An interim measure, prior to the introduction of the R&D Tax Credit, will increase the R&D expenditure cap for the R&D Tax Concession Offset from $1 million to $2 million for 2009-10. This demonstrates increased Government support for eligible small companies.

Status: On 12 May 2009 the Government announced it will replace the existing R&D Tax Concession with a new R&D Tax Credit. The R&D Tax Credit is planned to come into effect from 1 July 2010.

In light of the feedback received on the exposure draft legislation released in December 2009, the Government has adopted a range of changes to make the legislation clearer and to remove unintended consequences.

The modifications to the legislation include a revised definition of core R&D that uses clearer language and dispenses with a range of overlapping tests.  The Government has also decided not to extend the exclusions list to supporting activities and to narrow the scope of activities to which the new dominant purpose test will apply.

“After close consideration of the new tests for core and supporting R&D and detailed consultations, we have concluded that the augmented feedstock rules should not be necessary,” Senator Carr said.

The second exposure draft also takes a new approach to software R&D.  Generally, software R&D will be subject to the same rules as all other kinds of R&D, but will be subject to a more targeted exclusion for certain in-house software.

For more information about how Treadstone can help you submit your R&D tax concession call us now for a free consultation  on (03) 9016 3575.