Budget Savings (Omnibus) Bill 2016 – Cuts to R&D Back on the Table
Yesterday, the Turnbull Government introduced their omnibus budget savings bill into the Australian House of Representatives. The ‘budget repair’ bill contains 24 measures that will save a projected total of $6.1 billion over the forward estimate period.
One such measure is the 1.5% reduction to the rate of tax offsets available under the R&D Tax Incentive Program for the first $100 million of R&D spend. If passed, the measure is expected to save $600 million over the forward estimates and come into effect for income years commencing on or after 1 July 2016.
The Government’s rationale for the change is to offset reductions in the overall company tax rate proposed in the 2016 Federal Budget. When the R&D Tax Incentive was first introduced in 2010, a stated aim was to ensure R&D Tax Incentive benefits would be unaffected by future changes to the company tax rate, i.e. lowering the company tax rate would increase the relative benefit of the Incentive and thus encourage more Australian companies to engage in R&D activities.
As it stands, companies with a turnover of greater than $2M that access the R&D Tax Incentive will lose 10-15% of the current net after-tax benefit available via the Incentive, as they do not yet benefit from lower overall company tax rates. Even if the proposed tax rate reductions for small business (with turnover of <$10m) contained in the Budget do pass, larger companies will still see a significant reduction in net R&D benefits as a result of this measure. The measure is also short-sighted in so far as companies who are in a tax-loss position and that would have previously received 45% of their R&D spend as a refundable offset (in the form of a cash payment), will now only receive 43.5%.
Considering recent announcement around the National Innovation and Science Agenda, and the Government ‘s championing of increased innovation in the Australian private sector as fundamental to driving transition to the new economy, it is disappointing to see any proposed reduction in the levels of R&D support available to Australian companies that are actively engaged in R&D and innovation.