R&D Tax Credit clears Senate

UPDATED: The controversial R&D Tax Credit today cleared a major hurdle on its way to becoming law by passing through the Senate.

However, the bill still needs to go back to the House of Representatives where it may be amended. If it is amended, it'll return to the Senate to receive its final sign off before being passed into law.

The Labor government announced in June that with the changing of the guard in the Senate, and support from key independents and The Greens, it expected to write the bill into law in August.

Read more about the R&D Tax Credit.

The bill offers a 45 per cent refundable tax credit to eligible firms that are not more than 50 per cent owned or controlled by a tax exempt entity and that have an aggregated turnover of less than $20 million per annum; and a 40 per cent non-refundable R&D tax credit will be available to all other eligible firms.

A refundable tax credit will first deduct the amount of tax liability a company has, and if there is still credit left over, the company may claim that in the form of a refund from the government. The non-refundable tax credit will only reduce a company's tax liability, although any surplus can be carried over to subsequent years.

This means a small research-intensive biotechnology company that is yet to turn a profit can claim a tax credit, and receive a refund from the government for up to 45 per cent of its R&D spend, if eligible.

The bill was first announced in May 2009 and was stalled in the Senate after passing the lower house. The election in 2010 put the Bill on hold, then the opposition and Senator Steve Fielding blocked it in the Senate.

The change of guard in the Senate mid-year and the shift of the balance of power to The Greens allowed Labor to cut the deal to see it pass into law.

Because the Bill will operate retrospectively, applying as of 1 July even though it’s not expected to become law until at least August, Labor and The Greens agreed to an early announcement to allow businesses prepare for the change in tax legislation.

Revised at 6.11pm, Tuesday 23rd August, 2011.