Budget 2018 for startups
The R&D tax incentive is one of the biggest sources of funding for Aussie startups, so we were closely watching last night’s budget for rumoured changes to it. The result? Read all about it in this Budget 2018 for startups breakdown.
Just tell me the verdict on R&D …
Okay. For our (smaller) startups that are doing genuine, innovative pre-revenue R&D, there is no impact for 2017-18. For 2018-19, however, there is a reduction in the refund rate to an effective rate of 41% (down from the current 43.5%) as well as refunds being capped at $4 million.
More detail on R&D tax incentive changes, please
The good news is that the government recognised that the R&D tax incentive “provides critical cash flow support for start-ups who are often unprofitable in early years”.
It also introduced a number of measures, effective from 01 July 2018, including:
- Cash refunds will be limited to $4 million, for companies with turnover under $20 million, unless you’re doing deep R&D with clinical trials. This is good news because some of the reform suggestions had recommended a smaller $2 million limit.
- The refund will be set to 13.5% above the tax rate. This means that for most of our startups on the small business tax rate of 27.5%, the refund will drop to 41% from 2018-19
For companies with turnover more than $20 million (i.e. not startups), the reform has also flagged a number of additional changes to adjust benefits based on measuring R&D ‘intensity’. And there’s more detail on the government reforms to the R&D tax incentive in its fact sheet here.
Personal tax considerations for startup founders
- There will be a slight change to the tax bracket for 2018-19 but no change in rate (see the table below)
- Medicare levy will stay at 2% and change to 2.5% from 01 July 2019
- Fringe Benefits Tax (FBT) rate will increase to match the highest marginal rate (though this is not likely to come in until 2020)
- There are also a number of investment property impacts, including disallowing travel to inspect, separate depreciation on plant and equipment (e.g. dishwashers) and, in good news, increased CGT discounts for investing in affordable housing
Here’s the slight change that comes in from 2018-19:
Other changes from the Budget 2018 for startups
- Instant asset write-off. This popular tax tool has been continued until 30 June 2018. It’s an immediate write off for any asset purchase that costs less than $20,000 (for startups with turnover of under $10 million)
- Digital Currency – this will no longer be charged GST. For those bitcoiners out there, you’re probably already across this … the budget confirmed the removal of the (unfair) double taxation that was being put onto purchases of digital currency, effective from 01 July 2017
- $$$ for some innovation programs, including: $20 million over four years to establish a Small and Medium Enterprises Export Hubs program, $41 million towards the local space industry, and $30 million to support machine learning and artificial intelligence development
- $4 million for a women in science initiative, aimed at increasing STEM education for girls
- And there’s strong support to establish a consumer data right (CDR), which will underpin moves to more open banking
Well that’s it for another Budget! And as always with this stuff, please don’t take any of this as gospel (or personal tax advice). Please speak to us for that.
Image by abc.net.au