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Bio Technology : October 2009
Volume 19 • Number 3 • October 2009 Australasian BioTechnology 59 AusBioBUSINESS Current mechanism Tax Proft Tax Loss R&D Expenditure $ 4,250,000 Additional deduction at 125% $ 1,062,500 Total tax deduction $ 5,312,500 Impact on tax liability ($ 1,593,75) ($ 0 to $ 1,593,750) Less tax benefit of normal deduction ($ 1,275,000) Additional benefit $ 318,750 $0to$318,750 0 to 7.5% of R&D* *dependant on the extent of tax losses held. For smaller companies with tax losses, where their turnover is less than $5 million (unlike the above example) and R&D spend is up to $2 million, there is an opportunity to obtain an offset paid at a rate of 30 cents for each dollar of deduction that would otherwise have been claimable. Where the expenditure would be tax deductible at the rate of 125%, this provides for a benefit of 37.5 cents for every dollar spent on R&D. Example of an R&D tax offset – 1 July 2009–30 June 2010 If we assume that the company was completely in a tax loss position, this would result in the company receiving a cash rebate of $731,250 from the Australian Taxation Office. Had the R&D expenditure been incurred in prior years, as the R&D expenditure was more than the $1m threshold, the tax offset would not have been available to the company. The new threshold amount provides a current opportunity to maximise the cash flow position of the company. How does the new system allow for a further increase in cash benefts? From financial years commencing on or after 1 July 2010, the R&D tax offset will change to a tax credit program being a 45% refundable credit for companies with a turnover of up to $20 million. These changes will have a significant impact on those loss making companies earning between $5 million and $20 million who were unable to access the cash benefit from the R&D tax offset in prior years. These companies will now be able to receive a 45% refundable credit which could have a substantial impact on a company's ability to operate. The credit will operate as follows: Tax losses – R&D tax offset claim where turnover is <$5m R&D Expenditure $ 1,950,000 Additional deduction at 125% $ 487,500 Total tax deduction $ 2,437,500 Impact on Taxable income (loss) ($ 2,437,500) Election to claim R&D tax offset Total deduction foregone under offset claim $ 2,437,500 Tax offset in the form of a cash refund -- (where R&D spend less than $2m and turnover less than $5m) $ 731,250 45% refundable R&D Tax Credit Tax Proft Tax Loss R&D Expenditure $ 4,250,000 Deduction $-- Impact on Taxable income $ 4,250,000 Impact on Tax Liability $ 1,275,000 $ 0 to $ 1,275,000 Tax Credit at 45% $ 1,912,500 less: tax deduction forgone (at current 30% tax rate) ($ 1,275,000) ($ 0 to $ 1,275,000) equals: net tax credit benefit -- CASH $ 637,500 $ 637,500 to $ 1,912,500 Value of assistance 15% of R&D 15% to 45% of R&D* *dependant on the extent of tax losses held. Example of the current R&D tax concession where turnover is >$5m