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R&D tax credit eligibility tightened

The federal government has revised its definition of R&D activities under the Tax Laws Amendment (Research and Development) Bill 2011, which Parliament passed on 24 August.

The legislation details a 45 per cent refundable R&D tax credit for small firms with turnovers of less than AU$20 million and a 40 per cent non-refundable R&D tax credit for all other firms.

However, the eligibility for claiming has been revised and tightened in certain areas.

The government has narrowed its definition of “core” R&D activities for all businesses and has imposed a purpose test on businesses relating to “supporting” R&D activities.

Under the new rules, claims by large businesses, or “business as usual claims”, are likely to be limited: instead, the credit will benefit smaller firms undertaking riskier R&D activities.

Conversely, the definition of the types of entities eligible for the tax credit has been broadened to include several foreign corporations and public trading trusts.

In a change from the previous legislation, R&D activities in Australia will be eligible regardless of where the resulting intellectual property is held, and there will be more support for R&D activities conducted outside Australia.