About Biotechnology - Tax Incentives
The Research & Development (R&D) Tax Incentive replaced the R&D Tax Concession in September 2011 – and was effective retrospectively from 1 July 2011 - to provide a more meaningful incentive and “landmark reform” for R&D in Australia.
The tax incentive was designed to deliver a major boost for innovative companies, including biotechnology companies and spill-over benefits for the community from technologies.
Start-up innovation companies, especially biotechnology companies trading in loss, sit in the "sweet spot" and will be the biggest beneficiaries from the Tax Incentive’s 45% refundable component. The legislation also benefits large innovative companies by reducing the cost of conducting eligible R&D activities in Australia, making Australia a more competitive location for conducting biomedical and pharmaceutical R&D and clinical trials.
The Program idea that can be traced back to the Cutler Review recommendations of 2008, was a momentous and pivotal inflection point for Australian innovation; the type we as a community will look back on in admiration and congratulate its architects’ foresight.
As part of the 2014-15 Federal Budget, the Australian Government decided to reduce the rate of benefit to all companies under the R&D Tax Incentive.
AusBiotech is proud of its role in campaigning for and supporting the implementation of the program. In its first two years of operation we can already point to more than $100 million that has come back to the sector in cash refunds.
Funding is scarce for young companies, so this section of the value chain is where governments can have a great impact - and the Tax Incentive is delivering.
The R&D Tax Incentive provides:
• A 45% refundable tax offset to eligible entities with an aggregated turnover of less than $20 million per annum. Companies in tax loss may take a cash refund.
• A non-refundable 40% tax offset to eligible entities with turnover above $20 million. However, claims are capped at $100 million.
In addition to the incentive being more focused toward “genuine” R&D, other key features include changes to the definition of R&D activities, segregating them into core and supporting, and eligibility is extended to overseas pre-approved R&D that cannot be conducted in Australia.
“Core” R&D activities are experimental activities:
- whose outcome cannot be known or 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; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
- that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).
An activity is eligible as a “supporting” R&D activity where:
- it is directly related to a core R&D activity; or
- for certain activities, it has been undertaken for the dominant purpose of supporting core R&D activities.
Foreign companies who undertake R&D in Australia and companies that hold their intellectual property offshore will have more access to claim. The program expands on the kinds of entities that were eligible for the R&D Tax Concession to foreign corporations, to ensure ”the R&D tax provisions do not discriminate against foreign corporations which are permanent Australian taxpayers and acts as an inducement for more companies to conduct their R&D activities in Australia.”
Companies are able to seek an advance finding, where they are uncertain of the eligibility of their activity.
Provided it meets the eligibility criteria, companies can claim expenditure up to $100 million and there is (with minor exceptions) a minimum expenditure of $20,000.
Entities eligible to claim under the R&D Tax Incentive program are:
- Australian companies;
- Corporations that are Australian residents for tax purposes;
- Foreign companies resident in a country with which Australia has a double tax agreement and that carry on R&D activities though a permanent establishment in Australia; and
- Public trading trusts with a corporation acting as a trustee.
Like the R&D Tax Concession, companies are required to register annually with Innovation Australia before being able to claim a tax offset. Companies will need to register eligible R&D activities within 10 months after the income year in which the activity was conducted.
The R&D Tax Incentive applies to income years beginning on or after 1 July 2011 and the rate of support was capped for expenditure over $100 million from 1 July 2014.
AusIndustry is a specialist program delivery division in the Department of Industry with responsibility for delivering the R&D Tax Incentive program on behalf of the Australian Government. More information is available on their website.