R&D Tax Concession
KEY POINTS
- The R&D Tax Concession was introduced in 1985 to encourage Australian industry to undertake more research and development (R&D) activities. It is a broad-based, market-driven program with the applicant deciding upon the scope and timing of R&D activities.
- The current concession available are:
- a tax deduction of up to 125% for R&D expenditure;
- a 175% Premium tax deduction for increases in R&D expenditure above a rolling three year average;
- a 175% International Premium for eligible R&D undertaken in Australia, regardless of where the intellectual property
is held; and
- an R&D Tax Offset for companies spending less than $1m for the year and with a turnover of less than $5m.
- For the 2006-07 financial year, 6,806 companies were registered for the tax concession, this is a 8% increase on the previous year. These companies reported R&D expenditure of $11.595 billion, an increase of 26% on the previous year Based on 30 June 2008 data:
- 39% of registered companies used the 125% to claim a tax deduction;
- 19% used the 175% Premium to claim a tax deduction; and
- 36% used the Tax Offset at the 125% and 6% at the 175% rate.
- The R&D Tax Concession was examined as part of the review of the National Innovation system. The report of the Review Venturous Australia - building strength in innovation, can be accessed at http://www.innovation.gov.au/innovationreview/Pages/home.aspx. The Government will release a white paper in response to these recommendations.
FACTS AND FIGURES
The objectives of the R&D Tax Concession are to provide a tax incentive in the form of a deduction, to make eligible companies more internationally competitive by:
- Encouraging the development by eligible companies of innovative products, processes and services;
- increasing investment by eligible companies in defined R&D activities;
- promoting the technological advancement of eligible companies through a focus on innovation or high technical risk in defined R&D activities;
- encouraging the use by eligible companies of strategic R&D planning; and
- creating an environment that is conducive to increased commercialisation of new processes and product technologies developed by eligible companies.
R&D Tax Concession data 1985-86 to 2006-07 (as at 30 June 2008)
|
Financial Year |
Company Tax Rate (%) |
R&D Tax Concession
Rate (%) |
Indicative Benefit
after tax (%) |
Number of Companies Registered |
Total R&D Expenditure ($m) |
|
1985-86 |
46 |
150 |
23 |
2,549 |
108 |
|
1986-87 |
49 |
150 |
24.5 |
1,666 |
731 |
|
1987-88 |
49 |
150 |
24.5 |
2,067 |
1,093 |
|
1988-89 |
39 |
150 |
19.5 |
2,153 |
1,322 |
|
1989-90 |
39 |
150 |
19.5 |
2,365 |
1,625 |
|
1990-91 |
39 |
150 |
19.5 |
2,499 |
2,190 |
|
1991-92 |
39 |
150 |
19.5 |
2,836 |
2,698 |
|
1992-93 |
39 |
150 |
19.5 |
2,960 |
2,973 |
|
1993-94 |
33 |
150 |
16.5 |
3,436 |
3,392 |
|
1994-95 |
33 |
150 |
16.5 |
3,624 |
3,958 |
|
1995-96 |
36 |
150 |
18 |
3,734 |
4,470 |
|
1996-97 |
36 |
125 |
9 |
3,295 |
4,174 |
|
1997-98 |
36 |
125 |
9 |
3,304 |
4,354 |
|
1998-99 |
36 |
125 |
9 |
3,185 |
5,095 |
|
1999-00 |
36 |
125 |
9 |
3,274 |
4,920 |
|
2000-01 |
34 |
125 |
8.5 |
3,734 |
5,670 |
|
2001-02 |
30 |
125
175 |
7.5
22.5 |
4,755 |
6,092 |
|
2002-03 |
30 |
125
175 |
7.5
22.5 |
5,095 |
6,363 |
|
2003-04 |
30 |
125
175 |
7.5
22.5 |
5,639 |
6,922 |
|
2004-05 |
30 |
125
175 |
7.5
22.5 |
5,985 |
8,263 |
|
2005-06 |
30 |
125
175 |
7.5
22.5 |
6,408 |
9,734 |
|
2006-07 |
30 |
125
175 |
7.5
22.5 |
6,806 |
11,595 |
History of significant changes to the Tax Concession
|
1985 |
· R&D Tax Concession established |
|
1987 |
· The impediment to collaborative (syndicated) R&D projects by partnerships of otherwise eligible companies was removed
· Buildings could no longer be written off over three years – normal depreciation provisions would apply |
|
1989 |
· Changes were introduced including removing the ability to obtain a guaranteed risk-free, high-yielding return, funded by the tax payer, under some proposed syndicated R&D structures, and returns obtained not by undertaking R&D but by on-selling technology |
|
1992 |
· Denial of the Tax Concession to companies involved in syndicates or other financing schemes involving tax exempt public sector research institutions where a guaranteed return was in place. The change was aimed to discourage syndicate financial structures that concentrated on yields from the R&D tax deduction rather than returns from commercialisation of the technology developed |
|
1995 |
· Tax exempt private sector research institutions were barred from eligibility in new syndicates characterised by guaranteed returns |
|
1996 |
· Concessional rate was reduced from 150 per cent to 125 percent (in August)
· Closing off of the syndicated R&D arrangements
· R&D defined more precisely
· Core technology expenditure: deduction limited to one-third of R&D expenditure relating to the core technology in any year of income (at 100%)
· Pilot plant expenditure: to be written off over its effective life
· Cost of feedstock: only the net cost allowable at the 125% rate |
|
2001 |
· Introduction of the 175% per cent Premium (Incremental) Tax Concession for additional investment in R&D
· Introduction of an R&D Tax Offset for small companies in tax loss that undertake R&D, enabling them to ‘cash out’ their R&D tax losses
· A requirement that eligible R&D activities must be supported by an R&D Plan (effective from 1 July 2002)
· A new treatment of R&D plant-asset depreciation that allows a 125% deduction for effective life depreciation of assets used in R&D activities (on a pro-rata basis) |
|
2007 |
· 175% R&D International Premium was introduced on 25 September |
BERD – Business Expenditure on Research and Development
KEY POINTS
- Business expenditure on R&D (BERD) in Australia during 2006-07 was $12,036 million. BERD increased by 16% in current price terms.
- Over the five years to 2006-07, BERD increased at an annual rate of 15% in current price terms.
- BERD as a proportion of GDP increased between 2005-06 and 2006-07, moving from 1.07% to 1.15%.
- Australia's ratio BERD to GDP in 2006-07 was 1.15% compared to the OECD total of 1.56%. Although this is below the OECD average, from 2005-06 Australia recorded one of the largest increases compared to other OECD countries.
- Australia's BERD/GDP ratio is now above that of Canada (1.06%), the United Kingdom (1.1%), the Netherlands (0.96%) and Ireland (0.89%).
- On this measure, Australia was ranked 14th in the OECD in 2006-07, compared to 8th in 1995-96.
FACTS AND FIGURES
Trends in BERD and BERD/GDP
Source: ABS 2008, Research and Experimental Development, Business, Australia, 2006-07 (cat. no. .8104.0)
The average annual growth in BERD in the ten years between 1986-87 to 1995-96 (in current terms) was 16.8% compared to the average annual growth from 1996-97 to 2006-07 of 10.1%.
In terms of BERD as a percentage of GDP, the average annual growth rate in the ten years between 1986-87 to 1995-96 (in current terms) was 8.8%. (1995-96 was when the Tax Concession rate was cut from 150% to 125%).
In the period from 1995-96 to 1999-2000 BERD as a percentage of GDP fell by approximately 24% (in current terms). This resulted in an overall average growth rate between 1995-96 to 2006-07 of 3.2%.