The Government has released for comment draft legislation for the new quarterly credits payment option for the R&D Tax Incentive refundable tax offset.

This measure is intended to improve cash flow of applicants by making the refundable tax offset available quarterly rather than receiving the entire offset after assessment of the income tax return. It is intended to commence from the quarter starting 1 January 2014.

R&D Tax Incentive refundable tax offset is provided to eligible companies with an annual aggregated turnover of less than $20m. It is refundable in that it provides companies with tax losses a refund of 45% of their eligible R&D expenditure rather than just receiving additional tax deductions.

The quarterly offset would be paid as part of the BAS and then reconciled against taxpayers' actual refund entitlements as part of their annual income tax assessment.

Under the proposal a company can apply for the quarterly offset if it meets the following tests.

  • The reasonable receipt test requires that it be reasonable to expect that the entity will be entitled to the refundable tax offset for the year.
  • The complying taxpayer test requires an entity to have complied with its tax law obligations during the income year and also have an established history of compliance with them over the previous 5 years. It must also be reasonable to expect that the entity will continue to comply with those obligations in the future. The Commissioner would be able to exercise discretion to allow an entity to gain access to the quarterly offset for a year.

The complying taxpayer test includes both making lodgements and payments on time for taxes administered by the Commissioner of Taxation including income tax, GST and FBT. This test is extended to related entities. The solvency of a company will be taken into account when deciding if it is reasonable to expect that an entity will continue to comply with those obligations in the future.

The quarterly offset would be based on 25% of the most recent annual refundable tax offset. An entity can also vary the offset to obtain a larger refund. However if it does vary the offset, it will be liable for a penalty interest charge where the variation proves to be excessive.

Comments on the draft legislation are due by 10 May 2013 and should be sent to: General Manager, Small Business Tax Division, The Treasury, Langton Crescent, PARKES ACT 2600; Email: quarterlycredits@treasury.gov.au.

The draft legislation and explanatory memorandum can be obtained from the Treasury website, to access please click here.

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