R&D Tax Incentive Review Issues Paper Released

BSI Admin

As part of the recently announced National Innovation and Science Agenda (NISA), the Federal Government has initiated a review of the R&D Tax Incentive to identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive.

The Review released a detailed Issues Paper on 10 February 2016, and has requested stakeholders provide further input by 29 February 2016.

The Issues

The Review notes that participation in the R&D Tax Incentive has grown rapidly since it began in 2011. In 2013-14 nearly 14,000 firms registered for the Incentive – roughly a 50% increase over the 9,000 registered in the last year of the R&D Tax Concession (2010-11). The majority of this growth is represented by smaller companies with turnover of less than $20m, who are eligible for the 45% refundable tax offset offered by the Incentive.

The growth in registrations is also reflected in increased programme costs which have risen steadily from $1.9bn in 2011-12, to a forecast $3.5bn in 2017-18. Interestingly however, over the same period business expenditure on R&D was relatively stable (indicating a lower $ investment in R&D per firm).

On collaboration, the Review confirms that Australian businesses still languish near the back of the OECD pack when it comes to R&D collaboration with universities and other research organisations. Less than 10% of projects registered for the Incentive in 2013-14 involved some degree of collaboration.

A measure of the “additionality” of the programme is also included in the paper. Research conducted by the Centre for International Economics (CiE) estimates only 10-20% of total R&D registered would not be undertaken in the absence of the current program, which is broadly in line with R&D schemes internationally. Perhaps more insightful are CiE figures suggesting the programme materially influenced R&D related decision making for 54% of SMEs and 34% of larger entities.

The Future

As the Review considers submissions and prepares its final report (due in April 2016) the Government will be looking at measures to ensure that federal R&D incentives encourage business R&D activities that:

  • might otherwise not be conducted (additionality); and,
  • are more likely to benefit the wider Australian economy (spillovers).

In consideration of these objectives, the Review flags potential changes to the programme that may encourage greater levels of additionality and spillovers.

These include:

  • More prescriptive definitions of eligible activities;
  • Further adjustment of rates and thresholds to specifically target certain areas such as industry sectors, new claimants, start-ups or collaborative projects;
  • Requiring registration of eligible R&D activities prior to the conduct of these activities;
  • Changes to online administration processes and development of additional explanatory material;
  • Adoption of a single-agency delivery model.

As expected, the Review does not make firm recommendations about the future of the Incentive at this stage of the process, although it is reasonable to anticipate some or all of the above will be in the final mix. It is also encouraging to see an explicit recognition of the importance of programme stability where possible changes to the definition of eligible activities are considered.

Submissions in response to the issues paper are due by 29 February 2016. BSI will be preparing a submission and we strongly encourage you to share your views with the Review if you have not already done so.

Keep up to date with our views on the Review, and the National Innovation and Science Agenda, by regularly checking our website, following us on Twitter or giving us a call on (02) 9126 9100.