R&D Intensity

From 1 July 2021 the new threshold measure for non-refundable offset rates is 2% calculated as R&D expenditure over total expenditure, which is referred to as the R&D Intensity.

R&D expenditure below 2% of the total expenditure has an offset rate of +8.5% over the company tax rate. R&D Expenditure above the 2% has an offset rate of +16.5%.

As an example, if a company’s total expenditure is $10m then the R&D intensity threshold (at 2% of company expenditure) is $200,000.

If the company spends $500,000 on R&D, then the first $200,000 will attract the +8.5% offset, and the additional $300,000 will attract the +16.5% offset.

If the company tax rate is 25% ($20m < Aggregated Turnover < $50m for FY22), then the total R&D offset is:

(200,000*33.5%) + (300,000*41.5%) = $191,500

If the company tax rate is 30% (Aggregated Turnover > $50m) then the total R&D offset is:

(200,000*38.5%) + (300,000*46.5%) = $216,500

The total expenditure is as per the company tax return for the R&D entity, so tax consolidated groups will have a higher total expenditure than independent entities.