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24 Mar 15 R&D tax incentive changes – new cap applies 1 July 2014

The ATO reminds that legislation passed recently by the Parliament makes one key change to the research and development (R&D) tax incentive: it has introduced a cap of $100 million on the amount of R&D spending for an income year: see the Tax Laws Amendment (Research and Development) Act 2015. If a company exceeds this amount the rate of the R&D tax offset is reduced to the company tax rate (currently 30%). This change applies in relation to an R&D entity’s assessments for income years commencing on or after 1 July 2014.

If a company has R&D notional deductions above $100 million, the R&D tax incentive continues to apply to the total of the R&D notional deductions. The entity is entitled to an offset equal to 30% of the notional deductions over $100m rather than previous 45% or 40%.

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