Tax updates: R&D credits, trusts, flood levy & the carbon tax

New Research & Development (R&D) Credit: are you eligible?

The ATO has announced a new R&D Tax Credit Program which will replace the R&D Tax Concession effective from 1 July 2011. 

The most significant changes for small to medium businesses are:

1. Companies with turnover less than $20 million will be eligible for a 45% refundable credit (a cash rebate that is paid even if the company is in a tax loss and cannot benefit from tax deductions).  There is no limit on the amount of expenditure that can be claimed 
2. Small businesses will be able to access the tax credit quarterly from 1 January 2014, which is expected to improve cash flow for these businesses and provide an added incentive to conduct R&D activities.

Currently companies with tax losses can only obtain a cash refund if they have a group turnover of $5 million or less and aggregate R&D expenditure of $2 million or less.  If they exceed either of these limits they can only benefit by additional income tax deductions which only provide a cash benefit if the company has taxable income.

For example, a group with a turnover of less than $20 million with $1 million of R&D will receive a cash rebate of $450,000 whereas under the current rules the rebate (which may not necessary result in a cash refund) would usually be $375,000.

The Bill and the recent changes will be positive for the small business sector and certain industries like the biotechnology and information technology sectors.

However, the changes will also mean a tighter definition of eligible R&D activities which will restrict its availability. Accordingly, we recommend all clients currently claiming R&D to review their systems and processes to ensure they can identify, track and substantiate all eligible R&D activities and costings.  This will ensure compliance with the new program and maximise and retain any R&D potential.  We will be happy to assist with this process where applicable.

For clients currently not claiming the R&D Tax Concession, we would be pleased to assist with establishing whether there are any opportunities under the future R&D Tax Credit Program.

* Includes the effect of the tax free threshold and the low income tax offset (LITO).

In brief: The Carbon Tax is finally announced

As we are sure you are aware, details of the carbon tax have now been announced.  The carbon tax will begin at $23 a tonne from 1 July 2012, rising to around $25 a tonne by 2015 when the tax converts to an emissions trading scheme (ETS).

From 1 July 2012, the tax-free threshold will increase from $6000 a year to $18,200 a year, with a further increase from 1 July 2015.  The new tax scales are set out below.   

In brief: Trust income streaming laws

New tax legislation that enables the streaming of capital gains and franked distributions to beneficiaries for tax purposes, together with new anti-avoidance rules was introduced on 29 June 2011, effective for 30 June 2011.

Broadly, the amendments ensure that, where permitted by the trust deed, the trust's capital gains and franked distributions can be effectively streamed to beneficiaries for tax purposes by making those beneficiaries "specifically entitled" to those amounts.

Where applicable, we will be undertaking a process to ensure your trust deed allows for streaming of income, and will contact you if changes are necessary.

Flood Levy reminder for employers

A quick reminder to employers to ensure the new tax tables are used for PAYG Withholding which includes the new flood levy from 1 July 2011. 

These tax tables are included in our up-to-date MYOB system on our server.  If you are using your own system, the correct tax tables are available at http://www.ato.gov.au/businesses/content.aspx?doc=/content/33283.htm&alias=taxtables

For more information on any of these tax updates, please contact us