In an exciting Australian Federal Budget anchored around creating more jobs for Australians to boost the post-COVID-19 economic recovery, the Government maintained an eye on its broader mission for Australia to become a leading digital economy by 2030.

The key takeaways from the Budget for the tech and digital sector are:

  1. R&D: The Government’s investment of an additional $2bn in encouraging local research and development through the Research and Development Tax Incentive was a major win for the tech sector in the Budget. This announcement means not only the abandonment of planned cuts to the scheme — which is heavily relied upon by the sector to fund local R&D jobs — but also an initial increase in offset rates from FY22. An ‘at a glance’ view of the RDTI changes is set out below. Some remaining concerns, including the eligibility of software development for the scheme, remain to be resolved in further consultation.
Current RDTI Previously Proposed Bill Proposed Budget
Effective Date N/A 1 July 2020 1 July 2021
RDTI for small claimants (less than $20m annual turnover) Flat 43.5%
  • Corporate tax rate + 13.5%
  • $4m cap on annual cash refunds
  • Corporate tax rate + 18.5%
  • Cap on refunds abandoned
RDTI for large claimants Flat 38.5% Based on a three-tiered series of thresholds of ‘R&D intensity levels’ (% of total business expenses made up of R&D spend) in addition to claimant’s company tax rate:

  • 4.5% for 0–4% intensity
  • 8.5% for >4–9% intensity
  • 12.5% for >9% intensity
The intensity thresholds will be streamlined from three to two tiers, and offset rates will be increased:

  • 8.5% for 0–2% intensity
  • 18.5% for >2% intensity
Cap on eligible R&D expenditure $100m $150m $150m

 

  1. Benefits from economy-wide measures: The Government’s economic recovery planning has, understandably, focused on economy-wide measures or specific, immediately and acutely impacted sectors. This means that the rising tide of measures focused on Australian businesses generally will also carry the tech sector forward, including through the game-changing investment allowance, loss carry-back and JobMaker Hiring Credit schemes.
  2. Facing the skills shortage: Although the Budget included enhanced funding for the 2020 Cyber Security Strategy and upskilling and reskilling initiatives (including IT short courses), as well as measures specifically focused on increasing the participation of women in STEM and entrepreneurship programs, more will need to be done to address the needs of our future digital economy, through both skilled migration in the short term and local training and education in the longer term.
  3. Industry collaboration: The significant commitments to university funding (as well as the CSIRO) indicate an increased focus on the commercialisation of research, including through industry partnerships and investment opportunities. This will be a welcome focus to enhance ties between the university sector and industry, and will be an evolving area to watch.
  4. Furthering the digitisation of the economy, both within government and across other sectors: The Budget also formalised commitments made by the Government in recent weeks to low emissions technology (the $1.9bn Low Emissions Technology Roadmap), stimulating advanced manufacturing in key sectors (the $1.3bn Modern Manufacturing Initiative) and government digitisation as well as enhanced SME digital capabilities (the $800m JobMaker Digital Business Plan). The Digital Business Plan also promised further consultation on key areas of interest, including the domestic payments system and other issues raised by the Senate FinTech and RegTech Inquiry.

By Julian Lincoln and Anna Jaffe.

Julian Lincoln
Julian Lincoln
Partner, Melbourne
+61 3 9288 1694
Anna Jaffe
Anna Jaffe
Senior Associate, Melbourne
+61 3 9288 1152