R&D Tax Bill Update and Impact of JobKeeper on R&D Tax Claims
Update on Senate Economics Legislation Committee Hearing into the Treasury Laws amendment (R&D Tax Incentive) Bill 2019
On Monday 29 June 2020, the Senate Economics Legislation Committee met to discuss and continue its inquiry into the proposed changes to the Treasury Laws Amendment (Research and Development (R&D) Tax Incentive) Bill 2019. The inquiry involved hearing testimony from industry bodies and relevant government department representatives (from both the Australian Tax Office and Department of Industry, Innovation and Science).
The proposed Bill is looking to provide an estimated $1.8 billion saving to the R&D Tax Incentive program by introducing an R&D intensity measure for non-refundable R&D Tax offset claimants (companies with an annual turnover greater than $20M), introduction of a $4M cap on the cash refund for smaller companies (companies with an annual turnover less than $20M), increased integrity measures and raising the eligible R&D expenditure threshold from $100M to $150M annually.
The Senate Committee heard concerns from industry representatives, that in its current form, the Bill would encourage many companies to move and pursue their R&D activities offshore. The R&D intensity measure is likely to have a negative impact on high cost base Australian companies in the manufacturing, engineering and agribusiness sectors.
The hearing also heard that there was still an intention by the government to continue with their retrospective approach and apply the new legislation (if passed) to income years commencing 1 July 2019. However, at the hearing, advised companies to submit their FY2020 R&D Applications and expenditure claims with regards to existing legislation.
If the Bill is passed (with the retrospective date of 1 July 2019) companies will have to amend their income tax return accordingly to account for the changes in legislation – a potential for costly R&D tax compliance revisions for companies already struggling from the impacts of COVID and future economic uncertainty. The Senate is unlikely to vote on the proposed Bill until at least August 2020 following the Committee filing its report.
During the inquiry, government representatives were questioned on whether there had been any consideration given to the interaction between Jobkeeper payments and the R&D Tax Incentive regime. The government representatives were not able to provide an answer or clarity on this issue.
How could this impact your business?
If you are a company that has received Jobkeeper payments in relation to staff undertaking eligible R&D activities and are submitting an R&D Application for FY2020, it should be noted that there may be a requirement to adjust (decrease) your FY2020 R&D expenditure claims by an amount related to your Jobkeeper payments.
It will be important to be able to identify where there is an overlap with R&D salaries included in your FY2020 R&D claim and any Jobkeeper payments received. The exact mechanism by which this clawback may occur is unclear at this stage. Planning around FY2021 R&D activities should also factor in this potential reduction to future benefits under the R&D Tax Incentive program.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.