New R&D tax credit draft legislation released

The Federal Government has released an exposure draft of its new R&D Tax Credit legislation, which will replacing the existing R&D Tax Concession in July 2010, if the legislation is passed through parliament, and opened it up for comment by the public.

The R&D Tax Cut aims to promote research and development spending, particularly in small biotechnology companies that are not yet turning a profit.

According to the draft legislation, companies with a turnover of less than $20 million can claim a tax offset of 45 per cent on expenditure on research and development activities. Companies with a turnover of over $20 million can claim 40 per cent.

Unlike the old R&D Tax Concession, which came in the form of a deduction from a company's corporate tax bill, the R&D Tax Credit will deliver a company a real cash return rather than an increased tax loss.

For example, a company in tax loss turning over $10 million and spending $1 million on eligible R&D activities will now receive a refund of $450,000 rather than adding $375,000 to its tax loss.

This is particularly beneficial to small start-up biotechnology companies with high R&D bills that have yet to commercialise their product or turn a profit.

The draft legislation is open for comment from the public, with submissions closing on Friday 5 February 2010.

The government expects to introduce the legislation in to parliament in early 2010 so it can be put in to practice by 1 July 2010.