The Government also indicated this reduction will be phased in incrementally for companies over the coming 10 years with an aspirational target for the company tax rate for all companies, of 25%.

This is great news for investment in innovation in Australian companies and is expected to drive growth and investment within Australia, however with the current political environment, time will tell if this strategy can survive.

It was pleasing that, so far, no mention of changes to the R&D Tax Incentive were announced as part of the budget. However, the R&D Tax Incentive Review of the programme, launched in December last year and to be undertaken by the Review Panel (chaired by Mr Bill Ferris AC, Dr Alan Finkel AO and Mr John Fraser), was due to present their findings to the Government last month.

The review aims to identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive and measures to encourage additional R&D, in light of the fact that the programme has exceeded the cost of Treasury forecasts. The Review may propose changes to the programme or rates, and has not yet been released to the public.

The reduction in company tax rate announced in this week’s budget from 1 July 2016 is welcome news for companies and may provide an additional sweetener with a resultant increase in the R&D tax benefit for companies with a turnover of less than $10M of 47.5%,or net benefit of 17.5% up from 15%.

It should be noted however that the details of the implementation of the company tax rate is not known and there was no mention of the R&D tax incentive in the budget announcement. There is a possibility that, as previously raised, the government will then release a corresponding amendment to the tax incentive to realign with the net 15% tax offset .

With the election forecast soon and the budget yet to pass, there are a lot of uncertainties which will take some time to resolve but is a step in the right direction for SME companies in Australia.