Australian Government announces new tax credit system for R&D activities

Jun 18 2011

Providing a valuable incentive for U.S. investment in Australia, the Australian Government announced an agreement under which the Parliament will enact a AU$1.8 billion R&D tax credit that will deliver funding to innovative firms in industries including advanced manufacturing, information and communications technologies, and biotechnology.

In anticipation of this legislation, KPMG, the U.S. audit, tax and advisory services firm, last year produced a report showing that this new system would benefit almost every sector of the Australian economy. The report also noted that introduction of this globally competitive system would make Melbourne the world's most attractive tax environment for R&D.

"With the new R&D tax credit, Melbourne, Australia, will be the world's most attractive city for research and development," said Victor Perton, Commissioner to the Americas for the State Government of Victoria, Australia. "We are laying out the welcome mat for innovative American companies seeking to expand to the Asia-Pacific and take advantage of our highly skilled workforce. This tax credit places Australia and especially the State of Victoria head and shoulders above other countries as a destination for cutting-edge research. With many international firms already conducting leading-edge research in Victoria, this tax credit will further strengthen the Australian technology sector and support future breakthroughs."

"At recent business conferences in the U.S., there has been a buzz around this proposal, with many American business people finding the Australian R&D proposition compelling and saying this should be the new model for U.S. tax treatment of research and development," said Perton. "Recent investments by IBM, Boeing, Polycom, Netapp, and EA Games have all been based around the high quality of Australian R&D, the flexibility of our workers and Australia's business-friendly visa regime. Added to this cocktail, the R&D tax credit makes Victoria the obvious place to do business."

The new tax system, which will apply from July 1, 2011, will be relevant to all companies that carry out R&D activities through a permanent establishment in Australia. Subsidiaries of foreign-owned firms, small to medium enterprises, start-ups, and incubator companies will be the big winners under the new tax rules.

Under the new broad-based system, companies with turnover of less than AU$20 million will be eligible for a 45 percent refundable tax credit. The credit will also be refundable for companies with a tax loss, with the Australian Government providing an upfront cash refund of 45 percent for eligible R&D activities.

Larger corporations are eligible for a 40 percent non-refundable standard R&D tax credit; however, unused credit amounts will be able to be carried forward for use in future years.

KPMG's biennial study, Competitive Alternatives, found that companies benefited from an 88 percent lesser tax burden for R&D activities carried out in Melbourne than in the United States.

Victoria already leads Australia for business expenditure on R&D by foreign direct investment firms, accounting for 30 percent of the national total in 2008-09.

The state is also the national leader for overall business investment in R&D in key sectors, including automotive (72 percent), basic chemicals (50 percent), advanced food processing (40 percent), and publishing (69 percent).

Melbourne offers investors a highly innovative operating environment with access to world-class research institutions, a strong pipeline of talented and motivated professionals, a stable and transparent regulatory environment, and an extremely high quality of life in one of the world's most liveable cities.