Better targeting the Research and Development tax incentive — refinements
The Government has announced refinements to the 2018-19 Budget measure 'Better targeting the research and development tax incentive' to:
- defer the start date by 12 months with the revised package to apply to income years starting on or after 1 July 2019; and
- introduce a simplified R&D premium for companies with an aggregated annual turnover of $20 million or more. This would reduce the number of intensity tiers under the proposed intensity test for business from four to three to provide greater support for initial R&D investment while still rewarding companies that commit a greater proportion of their business expenditure to R&D.
The R&D premium ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenses for the year. The marginal R&D premium will be the claimant's company tax rate plus:
- 4.5 percentage points for R&D expenditure between 0-4% R&D intensity;
- 8.5 percentage points for R&D expenditure above 4-9% R&D intensity; and
- 12.5 percentage points for R&D expenditure above 9% R&D intensity.
This measure is estimated to have a cost to the budget of $235 million in fiscal balance terms over the forward estimates period.
Tax integrity — improving the operation of the hybrid mismatch rules
The Government will amend the existing hybrid mismatch rules to provide greater certainty that these rules should not adversely impact legitimate business structures or operations.
The amendments appear to clarify the intention of the introduction of the hybrid mismatch rules, being to prevent multinational companies from gaining an unfair competitive advantage by avoiding income tax or obtaining double tax benefits through hybrid mismatch arrangements and narrow the operation of the rules to this intention.
The proposed amendments will apply from 1 January 2019, ie the date of application of the hybrid mismatch rules.
The amendments appear to be curtailed to Additional Tier 1 capital instruments that give rise to an entitlement to a foreign income tax deduction. Franking credits will be available on distribution to holders of those securities if the issuing company does not claim the foreign income tax deductions.
The amendments seek to improve the operation of the dual inclusion income on payment rule so that it appropriately accommodates a chain of payments made within a consolidated tax group and allows the 'on payment' to be traced to income from multiple sources within the group.
Corporate taxation — removing the tax on refunds of large-scale generation certificate shortfall charges
The Government will amend the Renewable Energy (Electricity) Act 2000 (Cth) (Renewable Energy Act) to ensure no tax is payable on the refund of large-scale generation certificate (LGC) shortfall charges. The proposed measure will apply to refunds relating to all LGC shortfall charges including those charges already paid.
Currently, under the Renewable Energy Act, liable entities (usually energy retailers) must surrender LGCs to meet their legal obligations or pay a non-deductible shortfall charge.
The amendments allow for entities, liable to pay the shortfall charge, to apply to have the charge refunded if they surrender the outstanding certificates within the allowable refund period.
This measure is estimated to have a cost to revenue of $70 million over the forward estimates period.