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Large banks may be denied access to R&D tax incentive

Banking on Tax, Issue 10


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The 2013-14 Budget papers reconfirmed previous announcements that, with effect from 1 July 2013, large Australian banks were expected to be denied access to the R&D tax incentive. This change was estimated to provide a gain to revenue of $1.1 billion over the four-year forward estimates period and, given it would likely affect approximately 14 large groups, the total impact for the Big Four banks could be in the region of $400M-$500M.

The proposed new test would mean that multinational companies and groups with assessable income in Australia of $20 billion or more would no longer be eligible to make a claim for the R&D incentive after the income year ended 30 June 2013, removing access to an additional 10 per cent net tax benefit available in respect of eligible R&D expenditure. Notably, the new test would still allow multinational groups with a turnover of more than $20 billion, but less than $20 billion of assessable income in Australia, to access the Australian R&D tax incentive.

Submissions on exposure draft legislation were made on the basis that there was a real concern that Australian-based multinational groups, including large banks, would relocate their R&D activities to another jurisdiction.

Submissions closed on 20 May 2013, but largely unchanged draft legislation intended to enact the proposed measure was introduced into Parliament on 28 June 2013 in Tax Laws Amendment (2013 Measures No 4) Bill 2013. However, with the calling of the federal election and the proroguing of Parliament, this bill has now lapsed. The result of the election may determine whether this significant change proceeds in the next Parliament. Given the need for all sides of the political spectrum to secure tax expenditure savings, and the Coalition’s need to fund their announced company tax rate cuts, if elected, the proposed change might well proceed.

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