The R&D tax Credit is to be a broad-based, market-driven package to replace R&D tax Concession with a tax credit system. Key points in relation to the package include:

	a 45 per cent refundable tax credit (the equivalent to a 150 per cent tax deduction) will be provided to small firms with a turnover of less than $20 million per annum; and
	a 40 per cent refundable tax credit (the equivalent to a 133 per cent tax deduction) will be provided to small firms with a turnover of $20 million or more per annum.

Companies with a group turnover of less than $20 million will have access to a refundable R&D Tax Credit at a rate of 45 per cent of expenditure on eligible R&D activities. This will take the form of a ‘refundable’ tax offset under Division 67 of the ITAA 1997. If a taxpayer’s income tax liability is reduced to zero, the unused refundable tax offset amount can be applied to reduce other tax liabilities (such as GST). Any residual unused amounts can be refunded as cash to the company.

The standard R&D Tax Credit will be available to companies at a rate of 40 per cent for expenditure on eligible R&D activities. It will tack the form of a tax offset that can be carried forward under Division 65 of the ITAA 1997. If a company’s income tax liability is zero, unused offsets amounts cannot be applied to reduce other tax liabilities (such as GST).

Prior to the introduction of R&D tax credit, as an Interim Measure, the R&D expenditure threshold for the existing R&D tax Concession Offset was increased from $1 million to $2 million from July 2009. The Interim Measure provides increased Government support for eligible small companies.

The Consultation Paper: download
(which is also published in full on the MTA website www.mtansw.com.au) includes a number of questions that the Government is seeking comment on; these are outlined for the information of Members below;

	Should there be any exceptions to the general rule that eligible R&D activity must be conducted in Australia?
	How should the new R&D tax incentive treat R&D expenditure that is currently deductible 100 percent?
	Should payments made to associate entities only be eligible new R&D tax incentive where they are paid in cash?
	Should supporting activities: a. Be capped proportion of expenditure on core R&D? i. If so, what should be the appropriate proposition (for example, 1:1) b. Only be eligible where they are for the sole purpose of supporting core R&D activity? c. Exclude production activities or dual role activities? d. Only be eligible on a net expenditure basis? e. Attract a lower rate of assistance then core R&D? i. If so, what would the appropriate be?
	Should the current list of activities which are excluded from being considered core R&D be: a. Amended in anyway? b. Extended to exclude such activities from being considered supporting activities?
	How should the new R&D tax incentive treat software R&D?

The Government is inviting interested parties to lodge submissions in relation to the Consolation Paper. MTA is inviting Members to forward any comments they may have to this office by close of business by Monday the 19th October, 2009. Submissions are due shortly thereafter.

Sydney meeting will be held Monday 19th October 2009, Sydney Marriott Hotel 26 College Street, 9:00am-12noon.