01/10/2009 - 00:00

R&D tax change boost for SMEs

01/10/2009 - 00:00

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SMALL to medium-sized enterprises are poised to become significant winners in the proposed changes to research and experimental development tax concessions, according to KPMG partner, indirect taxes, Phil Renshaw.

SMALL to medium-sized enterprises are poised to become significant winners in the proposed changes to research and experimental development tax concessions, according to KPMG partner, indirect taxes, Phil Renshaw.

Speaking to WA Business News, Mr Renshaw said although the proposed changes would make it more difficult for the mining and manufacturing sectors to make tax concession claims, the new credit would double the level of support for SMEs.

Under the new regime, the federal government will tighten its eligibility criteria for R&D tax concessions, forcing companies to show innovation and high levels of technical risk.

The government has proposed to replace the existing 125 per cent tax concession with a 45 per cent refundable R&D tax credit for firms that have a grouped turnover of less than $20 million, and a 40 per cent non-refundable standard tax credit for businesses that have a grouped turnover of $20 million or more.

"Therefore the requirement to be able to support claims needs to be more substantive," Mr Renshaw said.

A Treasury consultation paper released last week said the current definition of eligible R&D activity needed to be changed because it allowed claims to be made for activities where there was not a strong rationale for public support.

The paper said the new "generous" R&D tax incentive intentionally redistributes support in favour of SMEs, which were more responsive to fiscal incentives.

Innovation Minister Kim Carr said changes to the tax treatment of R&D spending would boost investment, support jobs and strengthen business opportunities as the economy recovered from the downturn.

"The credit will provide more predictable, more generous and better targeted incentives, doubling the base level of support for small business and increasing the base level of support for all other businesses by a third," Senator Carr said.

As the biggest claimants of the federal government's R&D tax concession regime, the manufacturing and mining industries will be the hardest hit by the changes, which seek to prevent companies from making R&D claims for ventures generally undertaken in the normal course of their work.

Business expenditure on R&D (BERD) in Australia increased by 15 per cent during 2007-08 to $14.4 billion, up from $12 billion in 2006-07.

In 2007-08, manufacturing and professional, scientific and technical services were the main contributors to total human resources devoted to R&D, at 37 per cent and 27 per cent respectively.

This is more than in 2006-07 where the major contributors to R&D expenditure were the manufacturing (31 per cent), mining (21 per cent), and professional scientific and technical service industries (17 per cent).

Despite the growth in BERD, Australia is ranked 13th in R&D performance of Organisation for Economic Co-operation and Development countries.

The government intends to introduce the new legislation into parliament in early 2010.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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