Businesses that have been impacted by COVID-19 may be finding it difficult to continue their research and development (R&D) plans on track. As part of the Government’s COVID-19 economic response, more businesses carrying out eligible R&D activities may be able to access a refund of their R&D tax credit with increased leniency.
The R&D tax credit regime for the 2019/20 income year was originally restricted to specific corporate entity criteria, including a maximum pay-out of $255,000 and a 20% R&D wage intensity cap. Under the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, businesses conducting R&D may be provided with broader refundability in the 2019/20 income year. This includes the removal of the $255,000 maximum pay-out cap, as well as the removal of the wage intensity criteria.
The changes also include a payroll cap, or a labour-related tax cap that applies to R&D expenditure on non-approved research providers. In this case, R&D tax credit refunds are limited by the amount of Employer Superannuation Contribution Tax (ESCT), FBT, and PAYE the business has paid within the year.
Broader refundability measures will apply by default to all 2019/20 claims. However, for 2019/20 only, businesses will still have the option to use the limited refundability rules within the $255,000 refundability capped scheme if they prefer. This may be a better option for businesses who cannot satisfy the payroll cap.
