Commercialisation Australia
The Australian Government’s new innovation initiative, Commercialisation Australia, will be open for applications in early January 2010. This program will be administered through the Department of Innovation, Industry, Science and Research. Information and application details are now available from the Commercialisation Australia website www.commercialisationaustralia.gov.au. We will provide further information in our next MJA update.
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
How are we doing?
It’s always helpful to have your feedback on the articles 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 performing, or how we could improve.
R&D Tax Credit: A Chance To Be Heard
The Federal Government held two “pre-consultation” sessions in Melbourne (19 June) and Sydney (26 June) to help prepare a discussion paper regarding the new R&D Tax Credit legislation announced in the May Federal Budget. Following the release of the discussion paper in mid-July, a formal consultation process will commence.
Most Significant Outcome of the Sessions
The consultation is being headed by a team organised by the Department of Innovation, Industry, Science and Research (DIIRS). MJA has been given an explicit invitation to supply the names and contact details of all interested parties who would like to be involved in the planned face-to-face meetings that will form part of the consultation process. We have direct access to the team leader, Tony Weber, who has agreed to respond personally to all such requests. Please contact Kris Gale using our contact form if you would like to be included in the list of organisations that would like to participate.
The following is a summary of the main aspects of the sessions.
Legislation Timetable
July 2009 Release of consultation paper
Winter/Spring 2009 Release of draft legislation
February 2010 Bill released into Parliament
1 July 2010 Program commences
Attendees
The meetings were chaired by Tony Weber of DIISR. Peter Thomas, the Chair of the Tax Concession Committee of the Innovation Australia Board, was also in attendance along with officials from AusIndustry, the Australian Tax Office and Treasury.
Over the two sessions, three companies, five industry associations and six advisory firms were involved. This is a small representation and it is to be hoped that a broader cross-section of views is canvassed following the release of the discussion paper.
Summary of Discussion
The Credit will be placed in the 1997 Tax Act.
The government has directed that the program be drafted so that it is simpler and more predictable than the current R&D tax concession. The government also directed that, to keep the new program revenue neutral at a cost of $1.4 billion per year for the medium term, the eligibility criteria need to be “tightened” in order to support only “genuine” R&D.
It was agreed that ‘revenue neutral’ really means ‘kept at the same cost’.
Four approaches are being considered:
- Rewriting/fine tuning the definition of R&D activities
- Extending the concept of expenditure offsets
- Introduction of special sectoral rules
- Introduction of various forms of claim caps.
A key theme of the discussions concerned whether this exercise should be carried out from first principles (i.e. a “clean sheet of paper”) or a reshaping of the existing tenets of the R&D tax concession. A strong consensus emerged from non-government attendees that the latter is preferable. The strongest theme from the floor was that the major strength of the current program was the relative stability of the definition of R&D and that this should not be unnecessarily altered.
The main conclusions that emerged appear to be as follows:
Sectoral rules and claim caps are unlikely to fly.
Definitional change is hard to achieve in terms of the key concepts. Explicitly excluding certain activities was seen as a preferable way to go.
Considerable discussion focused on the SIE/directly related meanings and differences. The attendees fed back to government that the easiest place to rule out “non-genuine” R&D activities is in the list of excluded activities. The hope was expressed that the discussion paper will provide such a list for specific comment and response. The concern was expressed that the negative statements contained in the Cutler Report regarding mining and heavy engineering in terms of “whole of mine ” claims and receipt of “disproportionate assistance” has greatly unsettled the current program. The paper needs to detail what are the real concerns, beyond the numerical dollars involved, that the government harbours about this R&D. If it is truly non-genuine, reasons need to be given.
The extension of the current feedstock expenditure offset definitely appeals to the policy makers.
There is a battle to be fought here. It appears that this is seen as the best way to restrict R&D claims conducted in the production environment by large organisations. The group pointed out that the current offset (introduced in 1996 for political reasons) applies to expenditure on eligible R&D activities, genuine R&D if you will, under the Act. Further incursions may lead to a program that incentivises only R&D that is not seen as likely to commercialise as companies will not ultimately access the incentive in production trials except in the (hopefully) rare instances of technical failure.
A wide range of other issues was canvassed in the two meetings. These included unlimited amendment powers, guaranteed returns provisions, on own behalf provisions, R&D planning requirements and program delivery (including an AusIndustry charter).
Conclusion
The more specific the involvement of companies and industry bodies in the post-July consultation, the better.
There is an accumulation of assumptions, assertions and unsubstantiated opinions that the government administrative bodies are bringing to this process that, if not carefully refuted, could easily result in an R&D tax credit that is available on such a restrictive basis that it will fail to impact the R&D planning processes of corporate Australia, particularly in the large company sector. It needs to be remembered that the Top 100 company groups conduct 75% of Australian business R&D expenditure. These corporates will receive a lower rate of support (10 cents) than SMEs (15 cents) under the proposed credit, they are to be excluded from the refundable component and they are to lose the premium component. If the industrial nature and the commercial focus of the support is lost through definitional change or wide-ranging offsets, the damage to Australian corporate R&D culture could be immense.
We look forward to working with you in shaping a truly effective R&D tax credit through the consultation process.
How are we doing?
It’s always helpful to have your feedback on the articles 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 performing, or how we could improve.
Innovation Commentary on 2009 Budget
MJA’s managing director, Kris Gale, will be attending the 2009 Federal Budget innovation briefing, at the invitation of the Minister for Innovation, Industry, Science and Research.
We will bring you news of the highlights (and any lowlights) as they relate specifically to innovation policy, R&D tax concessions (or credits), grant funding and other government incentives shortly after the lock-up has completed at 7.30pm.
You can look forward to an MJA Update Article and email (if you’re a subscriber) tomorrow night, followed by a more detailed look at the changes within 24 hours of the budget.
Our initial reactions have been written up here: http://mjassociates.com.au/mja-update/budget-2009-innovation-policy-announced/
New Blog Post: Here’s to the Australian Risk-Takers, Doers and Makers of Things
Reading through the transcript of Barack Obama’s inauguration speech, one paragraph really stood out to me. It addressed the historical contribution of the risk-takers, doers and makers of things to America’s freedom and prosperity.
Perhaps that’s what we could do with a dose of now?
You can read the Innovation is Industry Policy blog entry here.
