Proposed changes to R&D tax incentive could affect start-ups

How will the proposed R&D tax incentive changes affect start-up credit management?

How will the proposed R&D tax incentive changes affect start-up credit management?

When it comes to a nurturing start-up environment, few countries are as hospitable as Australia. A combination of educated workers, a forward-thinking population and some key tax benefits make our country an attractive location for emerging enterprises across a variety of industries.

Start-ups benefit from tax breaks

The accommodative conditions have given rise to countless new businesses over the years. Between June 2013 and June 2014, for example, the number of actively trading businesses increased by 20,496, according to figures collated by the Australian Bureau of Statistics.

As touched on, local tax laws are one of the reasons why start-ups are so successful in Australia. It's no secret that new businesses struggle with credit management in their first few years, and tax breaks serve to ease this pressure and give them some financial breathing space.

For example, the research and development (R&D) tax incentive, which was established in July 2011, was introduced to encourage businesses to undertake research and development that would ultimately benefit Australia. Under this incentive, eligible organisations may be entitled to a 45 per cent refundable tax offset and/or a 40 per cent non-refundable tax offset.

Businesses who are able to leverage this incentive will naturally have a higher chance of succeeding and passing on the social and economic benefits back to the country.

Proposed changes to the R&D tax incentive

However, this looks set to change with the proposed adjustments to the Tax and Superannuation Laws Amendment Bill 2015, which is currently before the senate. If the bill is passed, it will reduce the offset rate of the research and development (R&D) tax incentive by 1.5 per cent for the first $100 million of eligible expenses.

Although it may not seem like a significant change, KPMG's global R&D tax incentives partner David Gelb believed that it could have a notable impact on Australia's reputation as a start-up haven.

"The R&D rebate as it stands at the moment is the most significant instrument impacting the start-up ecosystem in Australia. The mechanism has been in place for about a decade or so and has proved to be quite successful in enabling us to incentivise start-ups to invest here in Australia," said Mr Gelb, speaking to The Australian.

If the bill passes, it could add financial strain to businesses across the country and consequently increase the need for commercial debt recovery.

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