BUDGET 09-10: R&D windfall for small tech firms

Federal Budget delivers R&D windfall to companies with turnover of less than $20 million

The Federal Budget has delivered a research and development (R&D) windfall to companies with a turnover of less than $20 million.

The new R&D tax credit, which will replace the existing R&D tax concession effective from July 1, 2010, will provide greater benefit to eligible companies.

The new system provides a refundable credit of 45 percent of the R&D spend for these smaller businesses, an effective after-tax benefit of 15 percent as opposed to the 7.5 percent under the existing regime.

The new system has no qualifying limit so the R&D credits will apply from the first dollar of expenditure.

Deloitte Tax Partner and Telecoms Media and Technology specialist, Stuart Osborne says this should provide a huge boost to Australia’s grass roots technology companies.

"Typically, the R&D spend undertaken by these start-ups and smaller companies would generate tax losses which are of no benefit until the company makes a profit.

"Crucially, under the proposed scheme R&D undertaken by a company yet to turn a profit would get the R&D credit as a cash payment, effectively refunding part of the R&D cost," he says.

If a company, in tax losses, spent $250,000 on R&D today and they met the eligibility requirements around group turnover being less than $5 million, it would get a cash rebate of $93,750. From July 1, 2010, if the same company was in tax losses, and group turnover was up to $20 million, it will get a cash amount of $112,500.

"This is a much more targeted way of delivering the benefit to a larger number of companies which will be welcomed by the technology sector," says Osborne.

"Even for companies who are already profitable the new scheme will provide a greater benefit than that which already exists."

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