The May 2014 Budget has introduced several measures, expected to take effect from the 2015-2016 income year, that will provide greater incentives for businesses to undertake research and development.
One measure is giving qualifying businesses the ability to cash-out tax losses attributable to eligible research and development rather than having to carry it forward as a tax loss to be applied against future assessable income. The introduction of this measure will particularly benefit start-up businesses with a significant research and development focus. Such businesses are less likely to have near-term revenue streams that the tax loss can be applied against, and so may be at risk of failure before the tax loss can be utilized.
To qualify for the cash-out option the business must carry out eligible research and development and at least 20% of the businesses wage and salary expenditure must be attributable to such research and development.
Another measure seeks to address the current ‘black hole’ tax treatment of some research and development expenditure. Currently business expenditure that is not immediately tax deductible and is not part of the cost of a depreciable asset becomes ‘black hole’ expenditure. Research and development that turns out to be unsuccessful is a prime candidate for such ‘black hole’ expenditure and as such has acted as a disincentive for this type of business investment. The Budget seeks to address this by making capital expenditure relating to the creation of a broad range of intellectual property assets depreciable. This will give such intangible assets the same tax treatment as fixed assets.
