Article by Avant Group - What does the Federal Budget mean for R&D and EMDG?

What does the Federal Budget mean for R&D and EMDG?

Posted: May 22, 2019

The Federal Government’s 2018/19 budget included several changes to the Research & Development (R&D) Tax Incentive program, with minimal changes for EMDG (Export Market Development Grant).

Export Market Development Grant Remains Unchanged

The Export Market Development Grant (EMDG) scheme is open to Australian manufacturers and service providers that are exporting or planning to export their products into international markets. The scheme reimburses businesses for a range of promotional expenses.

Despite expectations that funding for the scheme would increase, the Federal Government has announced funding will remain the same. Extracts from the Federal Government’s Budget papers indicates that EMDG funding will be fixed at $137.9 million until 2021-2022.

Major Reforms for R&D

The Research and Development Tax Incentive (R&D) is a program designed to increase participation in the Australian Innovation Economy. The program up until the Federal Budget announcement provided a 43.5% refundable rebate to businesses with a turnover less than $20 million and a 38.5% non-refundable deduction for businesses with a turnover above $20 million for eligible R&D expenses. In recent years, the scheme has undergone review and this has resulted in a number of changes to the scheme including:

SMEs & startups turning over less than $20 million annually

  •  Refunds will be reduced from 43.5% to 41% for R&D activities from July 1, 2018 as a result of the refundable benefit being capped at 13.5% above the corporate tax rate, down from 16%
  • Have a maximum refundable cap of $4 million in any one claim year, if claiming more than $4 million, the amount above the $4 million cap will be carried forward as a non-refundable offset
  • AusIndustry has been given more power in an effort to improve transparency and ensure the scheme is no longer taken advantage of. The Department will now be able to make public findings and to issue binding guidance. Although this may make it more difficult to disagree with AusIndustry’s decisions, it will increase the number of precedents within the scheme upon which to make judgements
  • AusIndustry will now also be publishing names and details of claimants annually

Larger businesses turning over more than $20 million annually

  • Larger businesses with more than $20 million annual turnover will see changes to their R&D rebates based on a percentage of R&D ‘intensity.’ This will have the greatest impact on companies with low levels of R&D activity, reducing the potential incentive from 38.5% to a maximum of 34%. Conversely, rebates will increase for companies with high levels of R&D intensity – providing up to 42.5% rebate
  • However good news for the medical industry – clinical trials will be exempt from the cap

Overall, large businesses with an annual turnover above $20 million and low levels of R&D activity are being negatively impacted the most, with SME’s & startups being marginally affected by the changes.

If you’re looking to submit a claim for R&D, talk to us today to ensure you are prepared for financial year end.

Need help with your R&D Tax Incentive application? Or need further information about the R&D Tax Incentive changes? Talk to our team of R&D Tax Incentive specialist consultants on (03) 8640 0914 or email [email protected]

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