R&D Tax Credit Issues Paper. It’s arrived and it’s a worry….but don’t panic just yet
The much-anticipated R&D Tax Credit issues paper finally arrived last Friday. The consultation paper is available on the Treasury website. And like the refrain of the old song, given that we have been waiting for the paper to appear since the Federal Budget in May, one would be justified in crooning “Is that all there is?”
The New Research and Development Tax Incentive
The first thing to note is that the paper, entitled “The new research and development tax incentive”, has been issued by the Treasury. This is a big surprise as Treasury officials did not attend the consultation sessions on the R&D tax concession held last year as part of the National Innovation Review. Furthermore, the two pre-consultation sessions held in June this year were headed up by a representative of the Department of Innovation, Industry, Science and Research rather than a Treasury official.
The impression that Treasury has taken control of the process is reinforced by the fact that responses to the paper, due by Monday, October 26, are to be submitted to the Business Tax Division of the Treasury. This is all a great worry. Is it now the case that the destiny of the Federal Government’s flagship innovation program is no longer in the hands of the government department actually responsible for innovation? This matter will need to be pursued with vigour. The process is subject to a tight timeframe as draft legislation is mooted by the end of the year.
The paper itself is an odd amalgam of decisions apparently already made and areas for discussion where there is no guidance as to what the thoughts of the authorities actually are. It includes a series of unsubstantiated assertions about the operation of the current R&D tax concession and betrays an extremely poor understanding of how business R&D (BERD) occurs. It is easy to get carried away by the disappointing quality of the paper’s analysis and it will predictably attract a firestorm of criticism from the business community with regards to the number of restrictions to eligible activities and expenditures that the Treasury appears to be advocating.
However, now is not the time to panic.
Firstly, there a number of positives to reflect on:
- Increased rates of benefits
- Removal of the complexities associated with the premium
- Extension of the rebate concept
- More generous provisions relating to overseas R&D
- Allowing foreign ownership of generated IP
- Improvements to R&D software rules
Achieving Workable Outcomes
Secondly, the huge concerns raised by the discussion regarding ‘Eligible R&D activity’ in the report need to be vented but then channelled into achieving workable outcomes. The Government needs to be reminded of the main policy game here – improving Australia’s overall R&D effort. There is a need to learn from the lessons from 1996 where the Coalition’s introduction of significant reductions to the R&D Tax Concession led to a collapse of Australia’s BERD over the next 5 years. We are already behind our competitors. Unnecessary restrictions will run the risk of Australia dropping off the back of the pack.
Businesses and Stakeholder Organisations to Have Their Say
Finally, the consultation process must be approached as a real opportunity to turn around the poor performance of the administration in program delivery in recent years. The new Credit, however defined, will fail if it is delivered by the same administrative mindset currently associated with the R&D Tax Concession. The experiences of taxpayers need to be submitted directly to the authorities so that this message is clearly heard.
MJA will be working with its clients, industry bodies and other interested parties to ensure that all the relevant issues are raised in the consultation process. We would be delighted to assist you in this regard in whatever manner you deem appropriate.
To discuss the matters raised in this MJA Update in greater detail, please contact Kris Gale on (02) 9810 7211 or using our contact form
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One Response to “R&D Tax Credit Issues Paper. It’s arrived and it’s a worry….but don’t panic just yet”
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Hi Kris,
Did find a moment to read this, and found very interesting. Thanks for keeping the Australian RandD industry all informed.
I’m in the process of putting together a presentation on Newport’s interraction with Government support programs over the years we have been in business. Could you point me in the direction of a general source (web site) for the RandD tax credit statistics over the last 20 yrs? Particularly an analysis of how it has helped Australia in jobs, exports etc (big picture only, if possible!)
Thanks in advance if you can help,
Rod