Proposed R&D Planning Changes: Good for Government – Bad for Business
R&D Plan Consultation
In the last working week of 2008 we received draft guidelines for R&D planning from AusIndustry for discussion. R&D planning has been a requirement of the R&D tax concession since 2001 and is actually part of the definition of R&D activities in the Income Tax Assessment Act 1936.
There are serious deficiencies with the current R&D Planning Guidelines, despite the consultations prior to their introduction, but they have proven to be workable since their introduction.
R&D Planning Should be a “Carrot” not a “Stick”
MJA has a long track record of supporting a component of the R&D tax concession that links R&D activities to business strategy. In fact, our first submissions on this point were made way back in 1995.
Initially, our recommendation was for companies that commit to R&D planning to be rewarded with higher rates of deduction (a “carrot”), rather than the “stick” approach adopted by government. Instead we have a system that rewards form over substance and tends to see R&D plans as a compliance documents, where the absence of a plan can lead to a claim being denied.
And so the government set out, in response to the June 2007 New Elements of the R&D Tax Concession Evaluation Report, to simplify and streamline the R&D planning process.
But “simplified and streamlined” actually increases compliance costs
The government, in requesting feedback on the draft guidelines, said “[t]he draft guidelines are simplified and streamlined in comparison to the existing guidelines”. Whilst this is true in that the document is shorter, implementing the draft guidelines in their current form has the potential to significantly increase compliance costs without delivering any further business value.
Our principal objection to the new planning guidelines is that they force compliance questions about the eligibility of possible, future, planned activities into a rigorous legalistic framework to be addressed in advance of work being undertaken.
Under the current guidelines it is sufficient to outline the program of R&D activities, the intended “Innovation” or “High Levels of Technical Risk” in the activities and the objective of the R&D project. A form was provided, but it was not intended to be prescriptive. These requirements, although favouring form over substance, were sufficient to identify potentially eligible projects (including some that may or may not be undertaken, let alone claimed).
Further proposed changes, dealing with authorisation procedures, estimation of expenditure by planned R&D activity, accompanied by a lack of detail on planning updates and frequency as well as approval of updates means that the changes proposed are far-reaching and affect organisations whether large or small.
If this guideline is approved it is a victory of means over ends; of bureaucracy over business.
MJA Submission on R&D Planning
We have written a detailed submission to goverment on the proposed R&D planning guidelines. You can download a PDF below, together with the proposed R&D planing guideline and see what the issues are.
AusIndustry Draft R&D Planning Guidelines
MJA Submission on Draft R&D Plan Guideines
Although submissions formally closed on 30 January 2009, we suspect that few corporates or other parties will have responded due to the Christmas/New Year break.
If that’s the case, and you want to make a submission to AusIndustry on these guidelines, please forward your comments either by email to rdtaxcon@innovation.gov.au with the heading “Consultation on proposed R&D Plan Guideline” or by post to:
The Manager
R&D Tax Concession Program Management
AusIndustry
GPO Box 9839
Canberra ACT 2601
How are we doing?
It’s always helpful to have your feedback on the Submissions we prepare, and the approach we’re taking in dealings with the government. You can help us by filling out a Comment below this post on our website, and giving us any feedback you have on how we’re peforming, or how we could improve.
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Perhaps we can expect more money from government on this program as part of the Venturous Australian response process?
