Review of the R&D Tax Incentive
The Government has released the findings of the R&D Tax Incentive review and is seeking feedback from companies and other stakeholders on the recommendations that have been put forward. The review sought to identify opportunities to improve the effectiveness and integrity of the R&D program, including how its focus could be sharpened to encourage additional R&D.
The R&D community could perhaps be forgiven for some cynicism, as successive reviews of R&D assistance programs over many years invariably seek to either reduce the benefit to claimant companies or otherwise increase the complexity of preparing claims and substantiating eligibility. This latest release of recommendations for further change follows close behind the Government’s recently passed Omnibus legislation that has reduced the effective benefit of the program by 10-15%.
The review has put forward six main recommendations, which will now to be subject to a further round of consultation before changes to the program are finalised by the Turnbull government. The recommendations are:
1. Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.
2. Introduce a collaboration premium of up to 20% for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly funded research organisations. The premium would also apply to the cost of employing new STEM PhD or equivalent graduates in their first three years of employment. If an R&D intensity threshold is introduced (see recommendation 4), companies falling below the threshold should still be able to access both elements of the collaboration premium.
3. Introduce a cap in the order of $2m on the annual cash refund payable under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income.
4. Introduce an intensity threshold in the order of 1-to-2% for recipients of the non-refundable component of the R&D Tax Incentive, such that only R&D expenditure in excess of the threshold attracts a benefit.
5. If an R&D intensity threshold is introduced, increase the expenditure threshold to $200m so that large R&D-intensive companies retain an incentive to increase R&D in Australia.
6. That the government investigate options for improving the administration of the R&D Tax Incentive (e.g. adopting a single application process; developing a single program database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes) and additional resourcing that may be required to implement such enhancements. To improve transparency, the Government should also publish the names of companies claiming the R&D Tax Incentive and the amounts of R&D expenditure claimed.
While BSI Innovation is supportive of Recommendation 1 to retain the definition of eligible R&D activities or expenditure, we believe a number of unintended consequences are likely to be realised where the other recommendations are adopted. We will be preparing a submission to the Review Panel and would encourage claimant companies to lodge submissions highlighting where you believe you will be disadvantaged by the adoption of the any of the recommendations.
Submissions close Friday 28 October 2016 and should be forwarded to:
Department of Industry, Innovation and Science
GPO Box 9839
CANBERRA ACT 2601
If you would like further information on how this may affect your business please contact Mick Lynch at firstname.lastname@example.org or call 02 9126 9100.