Amount of the cash-out
Clauses 192 and 213
Issue: The refundable amount should be capped at the lesser of the maximum cap and the tax value of a company’s tax losses
Submission
(KPMG)
Requiring businesses to calculate the various amounts (total dollar threshold cap, total losses of the business, total qualifying R&D expenditure and R&D labour expenditure times a multiplier) on the amount that can be cashed out will disproportionately increase compliance costs.
The refundable amount should be capped at the lesser of the total dollar threshold and the tax value of the company’s total tax losses. No other caps are necessary.
Comment
The initiative is targeted at innovative start-ups, as this is where the existing tax treatment (of carrying forward losses) creates the most serious cashflow constraints and distortions on investment decisions. The two calculations relating to R&D expenditure are necessary to target the initiative and reduce opportunities for gaming. Capping the cash-out at total qualifying R&D expenditure ensures that only losses derived from R&D expenditure can be cashed out. Capping the tax credit at 1.5 times the R&D labour expenditure reduces opportunities for non-R&D expenditure to be characterised as R&D expenditure, a problem identified from the previous R&D tax credit.
Recommendation
That the submission be declined.
Issue: Change “0.28” to “the company tax rate” for the relevant income year
Submission
(Chartered Accountants Australia and New Zealand, EY)
References to “0.28” should instead refer to “the corporate tax rate” that applies to that income year. This would allow the legislation to reflect that the corporate tax rate is subject to change when calculating the amount to be cashed out or calculating repayment tax, for example.
Ideally, R&D repayment tax and loss reinstatement deductions should reflect the company tax rate that applied when the tax credits were cashed out.
Comment
Officials agree with this submission as it will allow changes in the company tax rate to take place without requiring legislative amendment.
If the company tax rate does change, R&D repayment tax and loss reinstatement deductions will reflect the new company tax rate. Applying the same tax rate to ordinary business income and repayments of tax credits will reduce overall compliance costs.
Recommendation
That the submission be accepted, subject to officials’ comments.
Issue: References to “tax year” should read “income year”
Submission
(EY)
References to “tax year” should refer instead to “income year” as these references do not specify a credit level for those companies with a non-standard balance date.
Comment
Officials will review the use of “income year” and “tax year” to ensure the above situation does not arise. This will ensure the proposed legislation is effective for taxpayers with non-standard income years.
Recommendation
That the submission be noted.