Non-Refundable Offset

Companies with an aggregated turnover of $20m or greater, get the offset rate as a reduction in their tax. If that reduction results in a negative, that will be carried forward to reduce future tax bills but will not result in a cash refund. Only small businesses (aggregated turnover <$20m) get a refundable offset.

For FY21 and earlier years, the non-refundable offset rate was 38.5%.

For businesses with an aggregated turnover of $20m to $50m this was a 12.5% benefit in FY21.

For businesses with an aggregated turnover of $50m or more, it was a net benefit of 8.5%.

From 1 July 2021 (FY22 onwards) this changed to a two-tiered calculation:

  1. R&D Expenditure amounts that are less than 2% of total expenditure, get an offset of 8.5% above the tax rate.
  2. R&D Expenditure amounts that are above 2% of total expenditure, get an offset of 16.5% above the tax rate.

Total expenditure is as per the R&D entities tax return, which will favour independent entities over tax-consolidated groups and will also favour localised research-focussed subsidiaries of overseas firms over Australian manufacturing companies.

So for a $25m aggregated turnover company, that has an expenditure (including R&D expenditure) of $10m, and R&D expenditure of $1m, the calculations are:

Company Tax rate (FY23) = 30%

2% R&D intensity threshold is $200,000

Low intensity offset = (30% + 8.5%) * 200,000 = $77,000

High intensity offset = (30% + 16.5%) * (1,000,000-200,000) = $372,000

Total offset for FY23 = $449,000

The tax bill is reduced from (25,000,000-(10,000,000-1,000,000)) * 30% = $4,800,000 to $4,351,000