As might be expected, the R&D tax situation is not simple. The...

As might be expected, the R&D tax situation is not simple. The ‘Grouping Rules’ that determine ‘aggregated turnover’ relate to ‘Connected Entities’, and apply if either entity controls the other. This means that currently the total annual income of the Cellmid group would constitute the ‘aggregated turnover’. The Midkine business is not treated as distinct.

I guess it is obvious why this is so. If grouping didn’t apply companies would move their research into a series of subsidiaries each with turnover less than $20M in order to overcome the limitation.

When the aggregated turnover is less than $20M then 43.5% of R&D costs are allowed as a tax offset and are refunded in that year, which currently is worth $1M a year to Cellmid. Once greater than $20M then no refund applies but 38.5% of the R&D costs still may be offset against tax, with this able to be carried forward to future years if un-used.

I expect we will see combined annual income reported for this FY2018 of around $8.5M, so the $20M threshold no doubt is another year or two away yet. But when it approaches that figure the argument for a demerger of the two business sections will become even stronger.