Significant tax changes for research and development activities will be implemented in July 2010, thanks to Research and Development Tax Reform elements contained in Australia’s most recent federal budget.

According to lawyer at Griffith Hack, the new scheme will give credits for expenditure incurred on eligible R&D activity carried out after July 1, 2010.

Key elements of the scheme include:

• A 40% non-refundable credit and 45% refundable credit for companies with a turnover of A$20 million (US$16.7 million) or less. Griffith Hack lawyers call this “a vast improvement” when compared with the current rate of 37.5% non-refundable credit and 37.5% refundable credit.

• A non-refundable credit of 40% for companies with a turnover greater than A$20 million, an improvement on the rate of 37.5% that is currently available).

• Elimination of the cap on eligible expenditure for companies entitled to the refundable credit, which currently sits at A$1 million.

• Tightening of the definition of eligible R&D expenditure to ensure credits are only available for true R&D developments.

Griffith Hack lawyers say the R&D tax credit will also be available to companies who may have IP owned offshore, but are undertaking research in Australia.

The existing scheme will be maintained for the 2009-2010 year subject to the alteration of the current cap on eligible expenditure for companies eligible to receive the tax offset from A$1 million to A$2 million.