Overall, the result from the Federal Budget 2020 is a welcome booster for businesses with research and development (R&D). Our R&D finance partner, Radium Capital shared their insights to help businesses who are considering R&D, or are already utilising the tax incentive.
The biggest takeaways are that the changes announced to the RDTI in the budget will not be retrospective. They will take effect from 1 July 2021. And from that date there will be no cap on the refund amount for businesses with an annual aggregated turnover of less than $20 million.
For these smaller businesses that qualify for the RDTI’s refundable rebate, the proportion they can claim back will effectively stay the same. If your annual aggregated turnover is below $20 million, from 1 July 2021, the refund percentage will be your company tax rate plus 18.5 percentage points. From the new financial year, the company tax rate for small businesses will decrease to 25%. This works out at refund rate of 43.5 cents in the dollar. The same as the RDTI is today.
For companies doing R&D that have an annual turnover of $20 million and upwards, the key changes are a higher ceiling for R&D expenditure—$150 million—compared to $100 million and a new two-tiered R&D intensity measure. The R&D intensity is measured as your company’s R&D expenses as a proportion of total expenses. For businesses with an R&D intensity of 0-2%, the intensity premium is 8.5 percentage points above the relevant company tax rate. For businesses with more than 2% intensity, it’s 16.5 percentage points. This will see a fall in the non-refundable offset for some businesses with 0-2% R&D intensity. The current level they receive of 38.5%. However, from the next financial year, they could expect 33.5% if their turnover is below $50 million. But for businesses that clock up an R&D intensity of over 2%, the 16.5 percentage point premium is a shot in the arm.
Innovation stakeholders issued a clarion call to the Federal Government for clarity and certainty on the RDTI. October’s Federal Budget answered that call. The notion that changes to the incentive would be retrospective and apply to FY 2019-20 has been scrubbed. So if you were holding back on getting an R&D advance for your 2019-20 refund, the newfound certainty around the incentive means you can now move forward with confidence. And you can restart planning strategically for this financial year, and the next, by locking in quarterly R&D advances with Radium Capital to steady and smooth your capital and cash flow.
Don’t just take our word for it. Business, big and small, with R&D programs have reacted positively to the Federal Budget and the Senate Economics Legislation Committee’s backing of the changes to the RDTI.
NeedlyCalm Pty Ltd is an early-stage medical device start-up based in Melbourne. The company’s innovations aim to reduce the discomfort of needle-related procedures for patients.
NeedleCalm Pty Ltd’s Founder and MD, Lauren Barbour says, “The increased government support for R&D through the tax incentive will help businesses leverage other types of funding, and enable them to once again use R&D finance, strategically, to support their project timelines.”
At the other end of the spectrum, while ASX-listed smart home technology leader Quantity Technology CEO Brett Savill welcomes the changes, he sounds a note of caution, echoing the sentiment of other innovation leaders, ‘‘The current crisis is a ripe opportunity for Australia to redouble investment in a digital economy and its future prosperity…. Now is not the time to reduce the level of government support for R&D in Australia, which already lags behind peer OECD nations in this respect.”
How ever you’re feeling about the new look R&D tax incentive, Radium Capital are here to help you make the most of your R&D refund and the R&D capital in your business. To help you do just that, they can advise on your R&D financing options and assist you with applying for a Radium Advance. They’re here to support your business through thick and thin.
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