Research & Development (R & D) Rebate
The R & D rebate is an excellent incentive for businesses engaged in research & development. The biggest issue I find with the R & D rebate is that businesses are unaware of the rebate or unaware of what constitutes R & D. This is further compounded as it is quite hard for me to tell when reviewing the financial records of a business if they are undertaking R & D.
The R & D rebate provides a 43.5% tax offset for eligible expenditure in excess of $20,000 for entities with a turnover of less than $20M (38.5% if greater and is non-refundable). It’s important to understand that the R & D expenses are denied as tax deductions, so the benefit is really 15% for the business entity; that is, 15% of money back on R & D expenditure. Also, only the depreciation on plant & equipment qualifies for the rebate in each year, not the full capital cost.
So what is R & D – it’s when new science or technology is created or attempted to be created. For most businesses, that means technology – the application of science. The activity needs to have a real risk of failure in a practical (non-financial) sense. Essentially the business tries to develop something innovative but doesn’t know if it can. Within the overall project, there are activities which are akin to experiments that may fail or succeed that then lead to further activities.
The R & D offset is available for companies for the most part (or partnerships of companies) and before recording the R & D information in the company tax return the R & D activities must be registered (approved) by AusIndustry. AusIndustry has a close off date of 30 April every year for the preceding year’s R & D activities and if you miss it, there’s no recourse.
I have considerable experience lodging R & D AusIndustry applications and the subsequent completion of the company tax returns so if you think you’ve undertaken R & D activities last year and would like more information please contact me WELL BEFORE 30 APRIL. I’ve actually received a speeding ticket once driving an application to AusIndustry before 5:00 PM 30 April one year due to information being supplied at a really late date (30 April). Thankfully the forms are electronic now.
If you would like to learn more about the R & D Rebate or if you have any other questions, please feel free to contact us.
RESIDENTIAL RENTAL PROPERTIES – BUDGET LEAKAGE MEASURES
Travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.
From 1 July 2017, the Government will limit “plant and equipment” depreciation deductions to outlays actually incurred by investors in residential real estate properties.
HELP REPAYMENT – BUDGET LEAKAGE MEASURES
The 2017-18 Budget confirmed the setting of the minimum repayment threshold at $42,000 from 1 July 2018 with a lower 1% repayment rate, and a maximum threshold of $119,882 with a repayment rate of 10% – see table below.
MEDICARE LEVY INCREASE – BUDGET LEAKAGE MEASURE
The Government will increase the Medicare levy to 2.5% from 1 July 2019 (up 0.5% from the current 2% Medicare levy) to ensure the National Disability Insurance Scheme (NDIS) is fully funded and to guarantee Medicare. Other tax rates that are linked to the top personal tax rate, such as the FBT rate, will also be increased.
MEDICARE LEVY THRESHOLD REDUCTION – LOW INCOME ASSISTANCE MEASURE
For the 2016-17 income year, the Medicare levy low-income threshold for singles will be increased to $21,655 (up from $21,335 for 2015-16). For couples with no children, the family income threshold will be increased to $36,541 (up from $36,001 for 2015-16). The additional amount of threshold for each dependent child or student will be increased to $3,356 (up from $3,306).
SUPER – HOUSING AFFORDABILITY MEASURE
The Government will allow a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6m total superannuation balance test for making non-concessional contributions (which applies from 1 July 2017).
The measure will apply to sales of a principal residence owned for the past 10 years or more. Both members of a couple will be able to take advantage of this measure for the same home. The measure seeks to reduce a barrier to downsizing for older people to enable more effective use of the housing stock by freeing up larger homes.
SUPER – HOUSING AFFORDABILITY MEASURE
The Government will encourage home ownership by allowing future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings.
Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.
Under the measure up to $15,000 per year and $30,000 in total can be contributed, within existing caps.
CGT – HOUSING AFFORDABILITY MEASURE
From 1 January 2018 the CGT discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.
CROWD FUNDING – INNOVATION MEASURE
The Government released with the 2017-18 Budget draft legislation to extend crowd-sourced equity funding (CSEF) to proprietary companies. This will open up CSEF for a wider range of businesses and provide additional sources of capital. Note that the Government legislated a CSEF framework for public companies in March 2017.
FOREIGN RESIDENTS WITHHOLDING TAX – INTEGRITY MEASURE
Australia’s foreign resident capital gains tax regime will be extended by:
- denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30 pm (AEST) on 9 May 2017 (with existing holdings being grandfathered until 30 June 2019);
- increasing the CGT withholding rate for foreign tax residents from 10% to 12.5% from 1 July 2017; and
- reducing the CGT withholding threshold for foreign tax residents from $2m to $750,000 from 1 July 2017.
GST – INTEGRITY MEASURES
Purchasers of newly constructed residential properties (or new subdivisions) will be required to remit the GST directly to the Tax Office as part of settlement.
Currently, GST is included in the purchase price and it is the developer who remits any GST. However, some developers are failing to remit the GST (despite having claimed GST credits on their construction costs).
The Government will align the GST treatment of digital currency with money.
SUPER BORROWINGS – LRBA INTEGRITY MEASURE FOR PENSION CAP
As an integrity measure, the use of limited recourse borrowing arrangements (LRBAs) by superannuation will be included in a member’s total superannuation balance and for the purposes of the $1.6m pension transfer balance cap from 1 July 2017.
OTHER – INTEGRITY MEASURES
The Government intends to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software
The Government will extend the taxable payments reporting system (TPRS) to contractors in the courier and cleaning industries
The Government will amend the small business CGT concessions to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.