Sound familiar?  I guess we all have a time where we are the impatient passenger or the beleaguered driver.

Well, it’s no different for those on the R&D Tax Credit bandwagon.

The answer regarding the Credit is, of course, no. We’re not there yet. But now is a good time to review the situation as the entrance gates loom into view.

Flicking the On Switch

The Credit will be available for Australian taxpayers for their first income year from 1 July 2011 onwards. As indicated in a previous MJA Update, the Bill is expected to shortly pass the Senate with cross-bench support. Our current understanding is that the Bill will be introduced by the Minister for Innovation, Industry, Science and Research, Senator Kim Carr, in the week commencing 15 August 2011. The only certain change to the current form of the Bill will be the introduction of quarterly payments for the Refundable Credit from 1 January 2014. But more on that later.

I Need To Change My Systems And I Need To Change Them Now

This Credit has been a long time coming and it’s understandable that companies are anxious to get cracking with training and shiny new systems. We counsel against this. We have been dealing closely with AusIndustry and the Australian Tax Office (ATO) in recent weeks and it is fair to say that detailed guidelines for the new program are several months away. Further, there may well be revisions to the scope and operation of certain aspects of the program such as the feedstock provisions. That currently leaves us with the legislation and an Explanatory Memorandum of somewhat dubious quality. And a whole stack of questions. Now, we will be resolving to ensure that those questions are fully answered in that guidance material. In the meantime, we suggest that intending claimants continue to operate their current R&D identification systems.

The overall impact of the changes to the definitions of eligible R&D activities and expenditures is likely to preserve the breadth of eligible projects but wind back the extent of expenditures that attract the support. As such, we strongly recommend that you continue with your current approach and then review what proportion of your documented claim qualifies as the rules of the Credit begin to be fleshed out. MJA will be running briefing seminars when real flesh is on the bones. Right now, information sessions would be interesting speculative exercises but nothing definitive can be said.  We hate to put it this way but we need to wait until we see the (Government) paperwork.

What Was That Again About Quarterly Payments?

It has been somewhat bemusing to observe the excitement being generated in some quarters about Senator Carr’s announcement that the 45% Refundable Offset will be available in a quarterly payment form. Bemusing because it was a proposal initially suggested in the Cutler Report that was quickly dismissed as being totally unworkable. Even more bemusing in terms of the fact that, after a National innovation System review that began three and a half years ago, we have to wait another two and a half years for this feature to activate. No explanation has been offered about why we have to wait so long or how the system might work. Yet some are heralding this announcement as a triumph. Talk about your delayed gratification!

Diving into the blogosphere on this question about the delayed start date turned up two explanations – the system would take that long to design or someone might be having a lend of us. We’ll leave you to draw your own conclusion on that one.

Letters From The Front

We will be moving shortly into a detailed series of consultations with AusIndustry and the ATO regarding the design of the Credit and new features such as Advance Findings and sectoral guidelines. We will keep you fully informed of all developments as they happen in this new chapter in Australian innovation.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

We ask whether this in line with announced Government policy and query whether the reforms are logical or even desirable?

It is Government policy to increase profitability by the R&D Tax Credit

The R&D Tax Credit Bill (the Bill) proposes to replace the current 125% and 175% R&D Tax Concessions, split by growth in R&D expenditure, with 40c and 45c R&D Tax Credits, split by company turnover.

The objective of the Bill is to implement the Government’s policy in Powering Ideas, especially with respect to industrial R&D including R&D in a production environment. This policy seeks to substantially increase the number of businesses undertaking R&D activities in Australia for the benefit of the economy, jobs and the environment.

According to the policy, it is supposed to achieve this by being simpler, more certain and by providing benefits “with the added advantage that companies can access the credit whether they are in tax profit or tax loss”. It seeks to overcome the market failure that businesses are too reluctant to invest enough in R&D in Australia to sustain our future economy.

The policy is explicit in that it wants more businesses to succeed and be more profitable as result of their R&D activities:

“The empirical evidence is clear: Australian businesses that innovate are more than twice as likely to report increased productivity and 63 per cent more likely to report increased profitability than businesses that don’t. Innovation makes them more competitive by enabling them to differentiate their products and services, target niche markets at home and abroad, and participate effectively in global supply chains.”
Powering Ideas, Chapter 5

It is Government policy to encourage successful, commercially-based R&D

It is also explicit Government policy that it wants businesses to come here, stay here and do R&D here so that it is commercialised here. This makes perfect sense. The Government cannot achieve its goals in securing our future by encouraging R&D that does not result in profitable outcomes.

If the Government only encourages research that does not improve business performance then this will change the program from one that, by every measure, creates more economic growth and tax revenue than it costs to one that drains revenue by rewarding failure and turning the program into an R&D insurance policy of last resort.

Should R&D in a production environment be supported?

Despite this, the question regularly arises about whether the Government should provide an advantage to businesses that will also make a profit on the output of the R&D. To a layman, this question makes sense; however, it is counterintuitive.

The objective is to make Australian businesses more profitable, more efficient and better able to commercialise technologies developed in Australia; that is, to make more money by doing more R&D so the economy benefits and the Government collects increased tax revenues. No business does R&D for the tax benefit. They do it for the commercial benefit. However, businesses do not carry out enough R&D in Australia so we need an internationally competitive R&D incentive system to encourage this behaviour and overcome the market failure.

Both the current and proposed legislation have caveats to restrict this encouragement to just the R&D activities. For example, the benefit can only be received by the business that bears the risks and costs of the R&D. The definitions seek to limit the programs to only the necessary activities to do the R&D. So far, so good.

Does the Credit’s collar match the cuffs?

However, the Credit’s addition of a dominant purpose test and the expansion of the feedstock provisions seek to withdraw the benefit from otherwise legitimate and necessary R&D activities in the mistaken belief that R&D performed in a production environment is not as worthy of support. This is a poor outcome and does not match the stated Government policy. It assumes that making a profit from your R&D is undesirable when the whole idea of the program is make Australian businesses more profitable. It introduces horizontal inequities. It discourages R&D focused on process improvements and discourages R&D for environmental purposes.

What are the horizontal inequities?

Different treatment of tax payers who otherwise share identical capacity and responsibility to pay tax is a horizontal inequity. If the only difference between two taxpayers is that one is able to perform R&D offline and one is required to do its R&D whilst making saleable product and both will generate the same net economic benefit from the successful completion of the R&D, then both should be able to access the same R&D tax benefit. However, the Explanatory Memorandum accompanying the draft Bill suggests that only the business that is able to conduct all its R&D offline will not be subject to either the dominant purpose test or the expanded feedstock clawback provisions.

This inequity reduces the R&D incentive for two main types of businesses – those where the scale of the project requires that the R&D be done on production facilities and those where the business does not have spare assets to do the R&D separately from the other activities of that business. The former discourages experimental development and the steps necessary to develop something sufficiently to allow it to be commercialised. The latter may have a larger impact on SMEs and may encourage inefficiency in capital asset utilisation.

What are the adverse impacts on manufacturing and environmental projects?

Process improvements are a large part of R&D especially in the embattled manufacturing sector. With established products, this is where the majority of R&D will occur. Even with new products, R&D is frequently required to developing new manufacturing processes to bring the new product to market. Undertaking process developments on existing production lines frequently requires the use of the production line whilst it is making saleable product. This is especially true for significant improvements in processing efficiency and for projects aimed at reducing greenhouse gases, water or other inputs consumption or to increase production from the same or improved inputs.

The expanded feedstock and dominant purpose tests will apply more pervasively to the manufacturing sector than to many other sectors. The nature of the Credit will add to the emerging viewpoint of many Australian businesses that our tax system is less favourable than overseas alternatives. As a result, rather than encouraging more businesses to do more R&D in Australia, the introduction of the Credit may instead be the last straw encouraging them to move production and related R&D offshore.

Our Conclusion

In conclusion, the simplistic notion that a business does not deserve encouragement to undertake R&D in Australia just because they can sell the immediate output from an R&D activity that was necessarily done in a production environment is illogical and undesirable:

• It assumes that businesses do not do R&D for the commercial benefit if that benefit is not received from the direct sale of the product made during the experimental development and that businesses do not deserve an R&D credit if they get a commercial benefit. This is counter to the clearly-stated objective of the Credit to make Australian businesses more profitable by encouraging them to do more R&D for commercial benefit.
• It assumes that businesses are more likely to undertake experimental development by their own volition if they are forced by circumstances to do it on production equipment than other businesses that have dedicated R&D equipment or are able to do R&D offline so that the first type of businesses deserve less encouragement than the second.
• It assumes that industrial R&D, which is primarily Development, is less worthy of being encouraged than lab R&D, which is primarily Research. This is despite Australia’s research achievements frequently outstripping our ability to extend and complete this research so that we can commercialise it here.
• It is also counter to the policy objective to see more R&D done in Australia for the benefit of the Australian economy.

Where to from here?

The debate about the contentious aspects of the Bill continues apace.

The Bill could go before the Senate anytime from 28 February through to the first session of the new Senate in July. It is unlikely that the Credit will be introduced retrospectively. The most likely commencement date for the program is 1 July 2011.

This gives us three potential outcomes:

1. The Bill passes before 1 July 2011 with issues like the expansion of feedstock and dominant purpose tests corrected by way of upfront Government, Opposition or Minor Party amendments. This is the best possible solution for business R&D in Australia;
2. The Bill passes as is but the Government considers and passes amendments to correct for these issues before the expected 1 July 2011 start date. This would be a good solution but it is a high risk strategy reliant on the majority of Parliament finally being responsive to the concerns expressed by stakeholders; or
3. The Bill passes as is and is operational from 1 July 2011 with all its fundamental flaws. This option includes the possibility that the Bill will apply retrospectively if it is passed by the new Senate. Corrections will need to occur on the fly to limit damage to the economy and Australian businesses wishing to conduct R&D. This will result in significantly higher levels of uncertainty and risk than with either of the other alternatives.

MJA will keep you informed of all major developments with the Credit legislation as they occur.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

 MJA sees this as an ideal opportunity for the Government to put the Bills into an independent consultation process to address the continuing criticisms of the proposed legislation. We remain attracted to the proposal put forward by Heather Ridout, Chief Executive, Australian Industry Group, that such a review should be conducted by the Board of Taxation.

 We will provide an analysis of the most recent chapter in this ongoing saga in an MJA Update next week.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

Senator Kim Carr’s press release summarising the Government’s position may be found at this link: INTRODUCTION OF THE R&D TAX CREDIT.

It contains two minor amendments from the previous version and all the main concerns we have previously expressed remain.

Two key issues are the attempt to make the legislation retrospective by applying a start date of 1 July 2010 and the voting intention of the Independent Members, Tony Windsor and Rob Oakeshott, who voted against the previous version of the Bill in June.

We will be in contact shortly with a primer on the issues and some suggestions for the way ahead. So it’s not just two Grand Finals that you have to look forward to!

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

The Senate Economics Legislation Committee (the Committee) released its Report into the R&D Tax Credit Bills (the Bills) yesterday. The Report sets up the debate in the Senate as to whether the Bills should become law prior to the proposed commencement date of 1 July 2010.

Overall, MJA is disappointed by the recommendations made by the Government in the Report and submits that the Dissenting Report of the Coalition Senators should be taken into account by the Senators on the cross-benches when the legislation comes to the vote.

When looked at in detail, the Government has recommended a series of minor changes to the Bill but has not undertaken any detailed analysis of most of the key concerns raised by so many of the stakeholders during the consultative process.

This is best illustrated by the Committee’s response to concerns raised regarding the proposed feedstock provisions which appeared for the first time when the Bills were read into Parliament on 13 May. At pages 61-63 of the Report, the proposed changes are outlined, followed by only one generally expressed concern made at the recent Senate hearings. The Committee goes on to note the concerns about the provisions without providing any details and then indicates that it “…does not believe this will be a problem for large companies.” It proceeds to recommend an advisory group be established to advise the administration on any “unforeseen consequences that emerge as the bill is implemented.”

Rather than dwell on whether this is a case of buck-passing of the highest order, we submit that it is a compelling example of the fact that the Committee simply didn’t have the time to absorb and analyse the feedstock issues in the same way that stakeholders were not afforded any time to undertake a similar process. Yet the new provisions stand to have a huge impact on eligible R&D for all claimants going forward. The same can be said for so many of the other concerns that have been raised regarding the Bills.

The content of the Report, spread very thinly over its 110 pages, underlines the rushed nature of the drafting process and the fact that the implications of the Bills in their current form have not been subject to anywhere near the requisite degree of scrutiny required for the making of good law.

Before setting out the recommendations and providing some further preliminary assessment of the Report, it is worth making particular note of the fact that the Government has recommended that the dominant purpose test be removed for companies with a turnover of less than $20 million. This would establish two distinct programs with separate definitions of R&D as well as levels of benefit. This takes the legislation even further away from the Government’s own announced policy, let alone the original position taken by the Cutler Report of a system that supported the same type of R&D within all organisations, large or small. It goes without saying that more compliance complexity and administrative uncertainty will follow.

We urge the Government to reconsider the passage of the Bills in the form recommended by the Committee. Policy on the run suits nobody and stakeholders have simply run out of time to consider the impact of the latest round of recommendations and amendments before the Bills need to be passed by 25 June.

The Government’s Recommendations

The Government Senators have made the following recommendations:

Recommendation 1
The Committee recommends that subsection 355-5(2) of the objects clause be
amended to clarify the reference to ‘new knowledge or information in either a
general or applied form’ by adding ‘new knowledge in an applied form  includes
new or improved materials, products, devices, processes or services’.

Recommendation 2
The Committee notes that many of the concerns were raised by organisations
who want to maintain the status quo. Nevertheless, given the concerns raised, but
acknowledging the need to ensure that public support is targeted appropriately,
the Committee recommends that the definition of ‘core R&D activities’ in section
355-25 be amended to remove the word ‘about’ from paragraph 355-25(1)(b) so
that the paragraph reads as:
[talking about experimental activities] that are conducted for the
purpose of generating new knowledge (including about the creation of
new or improved materials, products, devices, processes or services).

Recommendation 3
Given the  scope of the changes proposed, the Committee is of the view  that the
amended provisions,  including  the effect of the ‘dominant purpose’ test,  be
reviewed  after two years to ensure that the  legislation is operating consistently
with the Government’s intent.

Recommendation 4
The Committee recommends that companies with revenues under $20 million be
exempt from the dominant purpose test.   
 
Recommendation 5
The Committee recommends that a broad–based working group including small
business and union representatives be established to advise Innovation Australia
and the Department of Innovation, Industry, Science and Research about any
unforeseen circumstances  that emerge as the bill is implemented. This working
group would also inform the two year review of the bill (Recommendation 7).

Recommendation 6
The Committee notes the claim of drafting errors.  The Committee notes that
minor drafting errors are common when framing new legislation.  The
Committee does not believe that these minor errors are of sufficient magnitude to
delay passage of the bill but considers it preferable that they be dealt with before
the bill is enacted.

Recommendation 7
The Committee recommends that the Senate pass the bill, with the amendments
proposed in the earlier recommendations, before the end of June 2010. The
operation of the bill should be monitored on an ongoing basis and reviewed after
two years.

The Dissenting Report of the Coalition Senators 

The Coalition Senators have made the following recommendations:

Recommendation 1:
The Coalition recommends that the start date for these Bills be amended to 1
July 2011.

Recommendation 2:
The Coalition recommends that the passage of the Bills be delayed in order to
rectify the issue of drafting errors.

Recommendation 3:
The Coalition recommends that the definitions of core and supporting R&D be
reconsidered to be more closely aligned to the Frascati model of R&D.

Recommendation 4:
The Coalition recommends that the dominant purpose test be removed and be
reconsidered.

Recommendation 5:
The Coalition recommends that the Object clause be amended to ensure that
both research and development are given equal tax benefits.

Our Preliminary Assessment

The spectre of the 2007 Productivity Commission Report (the PC Report) looms large over the Committee’s Report. In the opening to Chapter 6, the Committee states that:

“The bill will introduce aspects of the recommendations that came out of the Productivity Commission’s 2007 review;” (page 59).

This is a stunning admission given that the PC Report was so directly contradicted by the Cutler Report and it is Cutler that the Government has repeatedly quoted as the basis of its R&D tax policy. Again, remember that the PC Report advocated the closure of the basic concession for all but the smallest companies, leaving most with an incremental option only. Cutler advocated the polar opposite – enhance the basic incentive and close the incremental option and that is exactly what the Government announced in last year’s Budget.

The Committee is in the thrall of the additionality and spillover arguments of the PC Report and repeats much of the debate that had already been resolved in the Cutler Report. From MJA’s perspective, it is clear that the Committee could not follow the arguments we put forward regarding additionality involving the need to focus support on generating additional R&D activities from the R&D projects that companies do undertake rather than designing a subsidy aimed at getting otherwise marginal projects across the line.

The Government’s recommended amendments do very little to allay the concerns expressed by so many stakeholders since the consultation process began towards the middle of last year.

The changes to the Object Clause and the definition of core R&D activities appear designed to more explicitly acknowledge the eligibility of applied R&D but do nothing to address the restrictive impacts of the dominant purpose test and the new feedstock provisions. The express inclusion of new or improved products, processes, devices, materials and services in the definition of new knowledge actually doesn’t make grammatical sense. How is it that new knowledge includes the creation of new and improved products and processes as the Committee suggests?Traditionally, new knowledge has been seen as the output of basic and applied research whilst the creation of products and processes results from experimental development ie. the application of existing knowledge. The recommendation to equate the two is very confusing.

In discussing the extent of the restrictions associated with the definitional changes, the Committee indicates that these changes are really only seeking to limit ‘business as usual’ activities and ‘whole of project’ concerns. This is giving voice to some of Treasury’s recent defences of the changes but will offer no comfort to those faced with assessments of their production-based R&D claims in the new regime.

The discussion of the concerns regarding the dominant purpose test is perfunctory and, tellingly, avoids grappling with the conclusion expressed at the Senate hearings by the current Chair of Innovation Australia’s Tax Concession Committee that determining dominant purpose under the new legislation will be entirely a matter of judgement as opposed to a question of fact. At no time is any consideration given to the power of the current ‘directly related’ definition to regulate excessive claims but the impact of the change to dominant purpose is tacitly acknowledged by the Committee’s recommendation regarding the test and SMEs.

The removal of the dominant purpose test for SMEs is, in one sense, welcome but it does establish two distinct programs by legislating two different definitions of R&D. This feels like an innovation that we could all do without as it adds yet more complexity and uncertainty, particularly for taxpayers whose turnover is in the vicinity of $20 million. What such a change does do, is reinforce the notion that the dominant purpose test is a restrictive one that will see larger companies unable to receive support for an uncertain range of R&D activities that would have otherwise qualified had the organisation simply been smaller.

Many of the major concerns raised in the recent round of consultations – beyond feedstock, these included the splitting of core and supporting R&D activities; the quality of the Explanatory Memorandum, particularly its example projects used to demonstrate the operation of the new definition of R&D; the ‘expenditure not at risk’ provisions; the greatly enhanced administrative powers; the increased complexity of the compliance regime – did not result in any specific recommendations by the Government. Like all the other parties, the fact that the timeframe for considering all the issues has been so condensed has meant that it is apparent that the Committee did not have the opportunity to actively turn its mind to many of the concerns raised.

We are very concerned that the Government accepts the Treasury’s modelling without having seen it. As we pointed out in our last Update, it appeared from the Senate hearings that Treasury’s admitted reduction of claims by 15-20% did not take into account the closure of the 175% Premium Concession which we had demonstrated previously would save 30-35% of the current cost of the program. In the absence of any published modelling, the Committee steps into the breach and offers up its own “back-of-the-envelope” calculations in support of Treasury’s estimate (page 75).

In some breathtaking assumptions, the Committee suggests that the new regime will increase current program costs by one third to one half of current levels by the combination of higher rates and new program entrants and the savings associated with the combination of the changed definition and the closure of the Premium Concession will roughly offset these costs. We wish to strenuously challenge these assumptions, particularly as they are partially based on a submission we made regarding the impact on program participation back in 1996 where the number of registrants was no more than half the current number and when participation rates fell from around 4,000 to below 3,000. It is unreasonable to assume that program uptake by new entrants will be of a similar dimension given the user base now involves roughly 8,000 Australian companies.

Of course, there is no opportunity to do this prior to the vote and the Committee appears happy with its published back-of the-envelope numbers standing in the place of any need to publish Treasury’s elusive modelling. This is not acceptable.

Finally, we remain absolutely dumbfounded by the following statement on Page 1 of the report:

 ”It is neither sustainable nor in the national interest that 60 per cent of the total government support is consumed by 100 firms out of Australia’s two million enterprises”.

You will be growing tired of us pointing out that this figure is consistent with ABS statistics on the profile of Australia’s corporate innovation activity and is in line with international practice. We have continued to emphasise throughout the consultative process that large corporates are prepared to negotiate some limits on their R&D tax benefits provided they continue to be acknowledged as performing legitimate R&D on the same basis as their smaller cousins.

However, once more, we feel compelled to point out in the strongest manner possible that the R&D tax incentive is not a finite pie, 60 per cent of which is consumed by 100 firms. Rather, it is a self-assessment program in which 60 per cent of claims are currently made by the top 100 firms. Smaller firms are not crowded out by the claims of the top 100 firms. All firms claim their entitlements against the prevailing rules. No firm’s access to the available benefit is impacted in any way by the claiming behaviour of any other company. In 25 years of consulting on the R&D Tax Concession, MJA has never met a company that does not claim or has a reduced claim because of a claim being made by another company of any size.

If this is the justification for the gutting of the incentive as the Coalition describes it, then it should be shown for the fallacy that it is. The Cutler Report called for reform to R&D taxation support for all Australia’s corporate citizens in the National Innovation System. It never intended for this reform to be the ushering in of an era where large corporates are seen as doing a lesser class of R&D when serving Australia.

What Next?

The Bills need to get through the Senate by 25 June. The Coalition appears ready to vote against the legislation so the focus now shifts to the standpoints of the Greens and the Independents.

Keep an eye out for MJA Updates in the next few days regarding the impending vote as well as any additional issues that emerge from a closer consideration of the report.

As always, should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

In the wider media, it’s hard to get a run in these times of super profits taxes and the highest paid AFL player being someone who’s never played the game. However, the issues with the R&D Tax Credit (the Credit) remain of utmost importance, particularly with the Senate Inquiry’s report due early next week. So here we are again. We apologise for the length and current frequency of these Updates but there continues to be much to discuss and debate.

In this edition, we would like to draw your attention to some of the hot buttons in play and remind you of where we think the Credit reform process needs to go.

Bills Digest Released and it Proves to be Compelling Reading

The Department of Parliamentary Services released its Bills Digest on the Credit legislation yesterday. The Digest seeks to dispassionately summarise proceedings to date. This is not the time to pick apart some of the statements that it makes about certain matters and the overall summation it provides is a fair one.

However,the concluding comments it provides regarding the draft legislation cannot be ignored in the current context.

Specifically,

“The proposed new incentive is a significant departure from the existing incentive and could be described as an entirely new measure.” (Page 26)

“In adopting only the research elements of the Frascati definition, the proposed incentive focuses more on research and less on development. Development activities of some large entities which qualify for the existing incentive will not qualify for the proposed incentive.” (Page 26)

“The tightened definition of ‘core’ and ’supporting R&D’ will mean that some non-scientific industrial research activities will not be eligible activities.” (Page 27)

And

“Significant uncertainty still surrounds the Bill.” (Page 27)

MJA agrees with all these conclusions. We would add that the industrial research activities and the development activities of SMEs will be equally affected by the wholesale changes being made.

We also note that the Digest details the active input from manufacturing companies and associated industry associations and bodies in the recent Senate processes. This was a strong theme that unequivocally emerged at the Senate hearings, where many of those who appeared highlighted that the impact of changes would be felt across all areas of business not just the resources and infrastructure sectors.

The question for the Senate is whether it can recommend passage of the Bill in its current form. The conclusions reached in the Digest have underpinned the vast majority of public submissions that strongly oppose the proposed changes to eligibility criteria and administrative powers that have appeared in the context of hasty drafting and a questionable consultation process.

We recommend the Bills Digest as compulsory reading for all those interested in the current debate.

Additional Concerns

By dint of being a summary, the Bills Digest couldn’t cover all the live issues so we would like to briefly mention three other active concerns.

Dominant Purpose

The current Chair of the Tax Concession Committee (the TCC) of the Innovation Australia Board (the Board), Mr Peter Thomas, gave evidence in support of the introduction of the dominant purpose test with respect to relevant supporting R&D activities on the second day of the Senate hearings. The TCC is the principal decision making authority regarding eligible R&D activities. In discussing the likely application of the dominant purpose test, Mr Thomas had the following to say in suggesting that dominant purpose means the “main reason you carried it out” (i.e. the more than 50 per cent purpose),

“How do you judge whether something is a 51 per cent test or a 49 percent. In the end, it is all judgement.”

By way of contrast, the Credit’s Explanatory Memorandum (the EM) says that establishing the dominant purpose of supporting activities is a matter of the context and overall circumstances of the activities i.e. a question of fact. We wholeheartedly agree with Mr Thomas’ views and believe that they dramatically illustrate the practical difficulties of a test where administrators will be testing the veracity of a claimant’s statements about its corporate intent.

Surely this is a flawed basis for operating a self-assessment incentive and should be rejected as such.

Feedstock

Treasury maintains that the new provisions (which appeared for the first time in the Bill and were not subject to any public consultation) are a simple rewrite and consolidation of the current provisions. Again, we wish to emphasise that this is incorrect in four key respects:

1. The notion of feedstock inputs has been extended and has been extended in an uncertain manner
2. The provisions are to be applied to depreciating asset expenditure for the first time
3. The point of calculation has moved from the feedstock output at the end of the financial year to an assessment of the value of the contribution of the R&D to marketable output and this may involve a series of calculations that need to be carried out over multiple years.
4. The calculation has changed from adding a net benefit to the R&D expenditure as the expenditure is incurred to a gross calculation that inflates R&D expenditure with a separate clawback calculation when the final finished products are sold.

Yet Treasury persists with this fiction that the new rules are the same as the existing ones.

The passage of the feedstock provisions is an outstanding example of the overarching concerns with the Credit design process- there is a huge divergence of opinion about the meaning of the provisions from various stakeholders with respect to hastily drafted legislation with little or no opportunity being provided for real public consultation.

Revenue Neutrality

It has been an oft-made point in this debate that Treasury has not provided any modelling in support of its position that the overall package will be revenue neutral in outcome. Many commentators have suggested that this will not be the case and we include ourselves among them. Close examination of the Senate hearing transcript associated with Treasury’s appearance indicates that a serious flaw has emerged in Treasury’s position.

In its appearance in front of the Senate, Treasury admitted for the first time publicly that 15-20% of currently-eligible expenditure would be eliminated under the Credit and that this shortfall would be made up by new entrants, albeit with no supporting evidence as to who would comprise said entrants. What Treasury failed to acknowledge at the hearing was the saving associated with the immediate closure of the 175% Premium R&D Tax Concession. MJA has repeatedly submitted to Treasury that, on the publicly available figures,shutting down this aspect of the programwould save 30-35% of the current cost of the program. 

Treasury’s continuing failure to make any modelling available simply reinforces the widely-held view that the overall Credit package is, in fact, severely contractionary and will prove to be a massive saving to the Government in contrast to the current R&D Tax Concession.

Where Does This Leave Things?

Throughout this process, MJA has maintained that the majority of the features of the Credit should be enacted as at 1 July 2010 – the move to the credit format; the higher base rates of deduction; the introduction of foreign-owned intellectual property; and the immediate closure of the 175% Premium Tax Concession. We are still of this view. However, we cannot support the wholesale changes to the eligibility provisions and the sweeping reforms to the compliance framework and associated administrative powers and procedures in the supposed pursuit of a tightening to ensure only “genuine R&D” is supported.

Too much is at stake to stand to one side and see the cruelling of a proud program.

The Credit does not reflect announced Government policy. The Government has been let down by those who assembled the legislative package under review.

We again call for a one year delay in the implementation of changes to program definitions and administrative procedures to allow real consultation to occur and appropriate transition mechanisms to be made available prior to a 1 July 2011 commencement date.

It was very welcome to finally hear the discussion of concerns surrounding excessive claims and, indeed, rorts at the Senate hearings. Prior to that, the administration would not engage in consultation around those concerns. After all, large eligible claims were what prompted the original remarks in the Cutler report that kick started this reform process in the first place. Virtually all the key stakeholders have repeatedly submitted that they are open to negotiate a solution to the large claims that occur under the current program by the introduction of a feature such as an annual consolidated group claim cap. Iflarge claims arethe Government’s real concern, it can be dealt with in a straightforward manner. Yet Treasury will simply not engage in any meaningful discussion about various solutions. We are left to ask the simple question, ‘Why not?’

We look forward to the Senate’s reflections on that question and all the above issues in its report due next week.

We will let you know what has been said as soon as the report becomes available.

In the meantime should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

Following the 19 April close date for public submissions regarding the Second Exposure Draft, the Bills and Explanatory Memorandum (EM) were introduced into Parliament on 13 May in advance of any submissions appearing on the Treasury website. The Bills and EM contained the new feedstock provisions which were not made available in the Second Exposure Draft along with some significant changes in areas such as the examples used to explain the definition of R&D and the rules surrounding the grouping provisions. The EM also contained several erroneous technical references to the Bills.

Main Issues With the Proposed Legislation

The majority of the legislation and the EM was consistent with the Second Exposure Draft but, as indicated above, there were some significant changes. Of greatest concern are the feedstock provisions. Treasury is maintaining that there has been a simple rewrite and consolidation of the existing provisions. This is patently not the case as the new provisions extend the notion of feedstock inputs in an uncertain manner, apply the offset to depreciating asset expenditure for the first time and change the point of required calculation from the feedstock output to an assessment of the value of the contribution of the R&D to the marketable output. This last point transforms the calculation from a single year to a multiple year process and introduces a level of potential complexity that may not be able to be resolved in some circumstances. The overall impact of the new provisions is not far from the deleterious impacts on claims associated with the ‘augmented feedstock rule’ abandoned following the outcry after the release of the First Exposure Draft. 

The other major problem lies with the final version of the examples used in the EM to explain the definition of R&D. A series of alterations and omissions have been made to the examples in comparison to the revised versions that appeared in the Second Exposure Draft, presumably in response to some of the criticisms received. The result is a series of examples that are internally inconsistent, contradictory and that bear little connection to the real world practicalities of commercial R&D.

MJA has gone to great lengths to detail the problems associated with the above issues in our written submission that has been lodged with the Senate Standing Committee on Economics (the Committee) and our submission is  available on request.

Having A Say In The Senate

The Committee was formed rapidly in response to the introduction of the legislation and its public hearings were conducted a mere week later on 20 and 21 May. These hearings actually preceded the closing date for written submissions (28 May) which is unusual in our experience and another likely reflection of the tight turnaround being attempted by the Government.

Kris Gale (20 May) and Melanie Reen (21 May) appeared in front of the Senators. The hearings also provided an opportunity for interested parties to share views more informally over the course of the two days.

The Senators focused on the impact of the changes to the definition of R&D with a particular emphasis on the dominant purpose test and on the issues surrounding the feedstock provisions. Other substantive matters discussed included the existence of so-called “rorts” under the current R&D Tax Concession, the rushed timetable for the introduction of the new legislation and the quality of the consultation process to date.

One key theme to emerge at the hearings was the fact that the proposed restrictions will extend beyond the claims of miners and civil engineers. A series of manufacturing companies appeared in front of the Committee and all argued that they would no longer be able to claim much of their production-based R&D under the proposed rules. One major company estimated that its claims would be reduced by around 80%

Consistent with the written submissions made available at previous stages of the consultative process, there was a strong coincidence of expressed viewpoints amongst the companies, industry bodies and advisers. All those who appeared pointed to real concerns surrounding the negative impacts that would flow from the introduction of the Credit in its current form. And these views were consistently at odds with the views expressed by the Government’s administrative bodies in the hearings that all the real problems with the Credit had been fixed and the balance of concerns stemmed from misunderstandings.

The Senate needs to resolve the polarised positions by 15 June when it has to deliver its report to the Parliament.

At the heart of this resolution will be assessing the true extent of the restrictive effects of the changes that the Government now admits will occur under the Credit. Treasury made a first-time admission to the Committee that 15-20% of currently-eligible R&D expenditure would be eliminated under the Credit. They did not offer any modelling to assure stakeholders that this shortfall would be made up by new entrants and claims to keep the program revenue neutral. Of course, many other commentators have estimated that the restrictive effect will be much larger. This matter must be resolved before the Credit becomes law.

The Engine Is Revving But Will The Lights Go Green On 1 July?

In order for the Credit to become law, it needs to be passed by 25 June which is only 10 days after the Committee delivers its report. Given the wide range of concerns raised in the Senate hearing, we would be surprised to imagine that the Committee will recommend that the Bills be passed in their current form.  In fact, we hear that the Opposition has indicated that it would seek to block passage of the Bills as they currently stand.

MJA has maintained its position that the issues associated with the eligibility of activities and expenditure should be made the subject of a real consultation and that the package should be deferred for a year. Due consideration can be given to sensible constraints on large production-based claims in such a consultation. In the interim, the Government could still introduce the credit regime including the new rates, adjust the software provisions and maintain fiscal restraint by closing the 175% Incremental Concession on 1 July of this year.

We will keep you posted regarding all developments.

In the meantime should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

Here at MJA, we have had to dispense with our usual practice of circulating our draft response to interested parties well in advance of the submission closing  date as only 10 working days were provided to put thoughts together. As a second best alternative, we have decided to make use of the MJA Update to give you a snapshot of the main conclusions that will be contained in our submission.

In a Nutshell

We believe that the Easter package should be treated as though it was the first response to the May 2009 Budget announcement.

We have concluded that the package is legislating a brand new business R&D support program that is a fundamental departure from the established principles and framework of the existing R&D Tax Concession (the Concession) and that 25 years of institutional experience and memory related to the Concession is at real risk of being jettisoned.

We submit that the Easter package is introducing a different type of support for corporate R&D that dramatically narrows the range of eligible activities and expenditures. In doing so, the program has shifted from supporting corporate research and development to corporate research only. This shift is reinforced by the replacement of the current Objects clause with its five promotional objectives with a new Object clause containing one restrictive premise that only business R&D reflecting additionality and spillover merits support.

The eligibility requirements for core and supporting R&D activities have been changed, not clarified, and have added several layers of complexity and uncertainty for program participants. In addition, new legal concepts have been introduced such as ‘production’ and ‘business as usual’ R&D for the first time in the Easter package. The previewed compliance framework shifts the Credit away from the principles of self-assessment to a program controlled by administrators through a range of sectoral guidelines and position statements so that it takes on a form resembling a discretionary grants program delivering support based on the perceived merits, rather than the eligibility, of the R&D.

Further, there are a number of unresolved features of the draft legislation such as expenditure not at risk, overseas expenditure requirements and core technology transition provisions. Critically, the redrafted feedstock expenditure provisions announced in the Easter package have not been made available to stakeholders.

Finally, after a legislative development process that has long been characterised by delay and a lack of true consultation, the Easter package now provides a miniscule amount of response time followed by a rapid timetable by which it becomes operative law on 1 July. For the vast majority of claimants, there will be no transitional process in place for taxpayers to absorb the new legislation and establish new plans and procedures. Rather, there is a hard changeover from the old system to the supposedly brave new world.

Overall, we submit that there is an unacceptable risk that the Easter package will harm Australia’s innovation system by withdrawing critical support for commercially-focused R&D. And remember that it is this aspect of R&D that Australia traditionally lags behind our competitors. There is an urgent need to provide for a comprehensive review of this legislation including a realistic process for its implementation in an orderly fashion. This may well involve a need to delay the introduction of a number of features of the Credit to ensure a smooth transition for taxpayers.

How New is New?

Given the above, it is worth demonstrating as briefly as possible why we agree with the Government that it is a brand new program, rather than a reform of the old one, thereby  leading us to conclude that the timetable to convert this draft package into legislation is simply too rushed and likely to involve unintended consequences and outcomes.

Since the consultation process began in earnest, all the Treasury releases have been headed “The new research and development tax incentive”. Recent consultations with Government officials have reinforced the idea that the R&D Tax Credit (the Credit) is being treated as a new program by outlining a different style of administration based upon industry sector-specific guidelines and a compliance framework that will be built from the ground up.

This Government’s emphasis of the fact that the program is a new one stands somewhat in contrast to the policy announcements in last year’s Budget which referred to a tightening of eligibility criteria of the current Concession to better support “genuine R&D”. There was a sense that there would be a significant carryover of the principles and understandings associated with the Concession and the Budget announcement reinforced this notion.

It is now clear that this is not the case. The fact that this is a very brave new world is even more starkly set out in the Easter package than with the 1^st Exposure Draft and Explanatory Materials (the Christmas package).

To demonstrate this, take the new definition of R&D activities contained in the Easter package as an example.

A New Definition of R&D

The Treasury’s consultation guide to the Easter package refers to a “clearer” definition of core R&D activities by its use of clear language in the place of ambiguous concepts such as ‘considerable novelty’ and ‘high levels of technical risk’. What they should go to say is that the intended definition of both core and supporting R&D is fundamentally different to the very stable definition that has been in place since 1985.

As you would be aware, eligible activities have been separated into two categories –core and supporting – with separate qualification tests. Previously, activities qualified as eligible R&D activities collectively through the ‘SIE’ or ‘directly related’ pathways. Now they are split into two distinct baskets.

 As Treasury has indicated, the new definition of core R&D requires taxpayers to be seeking new information (to solve problems or develop new or improved products and processes) and to need an experiment to uncover that knowledge.

The concepts of systematic, investigative, innovation and technical risk have all been dispensed with. These are concepts that are useful to taxpayers in qualifying their R&D activities and are well understood as opposed to ambiguous. Ten of the current technical objectives – the creation of new or improved products, processes, devices, material and services – have been eliminated and subsumed into the new knowledge objective.

This is an unequivocal narrowing of the definition of core R&D compared to the current Concession and, in fact, to the one contained in the Christmas package. Add the four new classifications of supporting R&D activities and the new restrictive Object clause and you end up with a very different definition of  eligible business R&D.

The September 2009 Treasury Consulation Paper stated that the Government was altering the definition to bring it more in line with the Frascati definition. They could no longer credibly maintain that this is the case. The proposed definition reflects the first two elements of Frascati – basic and applied research – but experimental development has been removed.

The new Explanatory Materials confirm the narrowing of the definition. In paragraph 2.16, they indicate that it is not enough to be doing experimental activities if they “merely confirm what is already known”. As displayed in the example projects provided, the suggestion is that the taxpayer will need to be able to prove in a retrospective assessment that the knowledge did not exist anywhere else. Not only is this highly impractical. It also flies in the face of encouraging an innovation system where several companies in an industry pursue the development of new and improved products and processes and the associated knowledge in parallel.

The guidance given to taxpayers as to how to interpret the definition is very open-ended. The Explanatory Materials indicate that qualifying the eligible purpose of the activities is a question of fact based on the overall circumstances of the conduct of the work (paragraph 2.32) without detailing what the key determining criteria might be. It appears as though the Government is seeking to preserve as much discretion as possible when assessing claims. This is apparent from the statement in paragraph 2.32 that says that “…it is possible that activities that are similar in appearance might qualify as supporting activities in one context but not in another.”

As we have been saying all along, the Credit is seeking to institute a scientific definition of R&D that gives voice to the Productivity Commission’s world view of what is “genuine R&D”.  Yet that view was not the one put forward in the Cutler Report, the Government’s Innovation White Paper or the May 2009 Budget announcement which all reflected the existing industrial definition.

Suddenly, we are at ground zero and you’ve been given 10 working days to get your head around what it all means!

More Work For Us All To Do

The proposed Credit is new, uncertain and even a bit scary.

We urge you to use the April 19 response and the highly likely Senate Committee as your last remaining opportunities to elicit the Government to pause and take stock of whether the proposed Credit really aligns with its previously announced policy. Hopefully, we can all then move on in a spirit of true consultation to ensure the right R&D outcomes for Australia’s innovation future.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

Below is a brief overview of the new legal concepts proposed.

Rates of deduction

The R&D Tax Credit (the Credit) is designed to provide a greater incentive for SMEs to undertake R&D by providing a higher tax offset than that available to larger companies. Foreign owned R&D will also be eligible. The rate, and whether it is refundable, will be dependent upon company turnover:

• A 45% refundable tax offset (equivalent to a 15% after-tax benefit) will be available to SMEs (companies with an aggregated annual turnover of less than $20 million) undertaking eligible R&D; and
• A 40% non-refundable tax offset (equivalent to a 10% after-tax benefit) will be available for companies with an aggregated turnover greater than $20 million undertaking eligible R&D. Unused non-refundable tax offsets can be carried forward.

Changes to the definition of R&D activities

As in the first draft, companies will now need to clearly distinguish between core and supporting activities, identifying not just two but three types of activities, including two subsets of supporting activities. Additionally, the Explanatory Materials appear to indicate the potential for Innovation Australia to differentially apply the definition depending on the circumstances.

(1)           Core R&D Activities

Core R&D activities are will now be defined as experimental activities whose outcome cannot be known and are conducted for the purpose of acquiring new knowledge. So it appears that although the words technical risk and innovation will no longer be used, these concepts will still remain, and both elements will be required to be demonstrated. The list of excluded activities will only apply to core R&D activities.

(2)           Dominant purpose supporting activities

These dominant purpose supporting activities will be defined as activities that do not meet the definition of core R&D activities and

• are for the production of (or directly related to) the production of goods and services; or
• would fall under the exclusions list

These activities will need to be undertaken for the dominant purpose of supporting the core R&D activities. Importantly, production activities have not been defined in the ED. This new subset of supporting activity will have the potential to significantly reduce claims across all industries, as the technical and financial risks in demonstrating any technology in a full scale environment are almost always going to be the biggest expense a company incurs in undertaking R&D.

(3)           Directly related supporting activities

A directly related supporting activity will be defined as any activity undertaken for a purpose directly related to the core R&D that is not a production activity or one that would fall under the exclusions list. The exclusions list will not apply to directly related supporting activities. It appears that there would be only a small amount of expenditure that would fall under this subset of supporting activities.

Software development activities

Software development will be subject to the same eligibility tests as other types of R&D with the exception of in-house, business administration style software. This exception has been incorporated into the exclusions list, however it will not extend to “applied” software that forms part of a device or equipment, nor to software activities that may qualify as supporting a core R&D activity. The existing multiple sales provision for core R&D software development has been removed.

Feedstock

The feedstock rules will change, however it is not yet known whether there will be any surprise additions to the current definition of “feedstock”. What is clear is that the notion of augmented feedstock introduced in the first draft has been dropped.

Expenditure not at risk

A company will not be able to claim expenditure on activities where the expenditure is not at risk. This will apply where a company has a reasonable expectation that it will receive consideration irrespective of the results ie receive consideration even if the R&D fails to deliver a result or a successful result. Expenditure not at risk will not necessarily apply to all product development projects where a company could receive consideration under a contract for the development and sale of a product. It will only apply if the contract provides that the company will receive consideration, irrespective of whether it delivers a product. 

Administrative powers

The Credit will continue to operate on a self-assessment basis for companies. However, Innovation Australia will have “enhanced” powers in registering and assessing eligibility of R&D activities. R&D activities can be unilaterally reclassified and rejected based solely on the detail provided by companies in the registration application. This means companies will not always get the opportunity to meet and discuss with the government on their activities and may only get an opportunity to present their case in a formal appeals process.

Object clause

The new provisions will be interpreted by having regard to the Object clause which will be more restrictive than the promotional Object clause of the existing program. The clause defines the object of the legislation as encouraging industry to conduct R&D where the knowledge gained is likely to have a benefit for the wider national economy and might not otherwise have been conducted without the Credit. As such, this more restrictive clause will lead to a more restrictive interpretation of the Credit provisions.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.

The Federal Government released the second Exposure Draft (ED) and Explanatory Materials (EM) in support of the new R&D Tax Credit (the Credit) after the close of business on Wednesday, March 31. In what is arguably emerging as a pattern, the ED and EM have been delivered one working day before the Easter break. This leaves a scant ten working days available before the due date for responses (April 19).

Given that the ED introduces some first time concepts such as a new definition of core R&D activities and ‘business as usual activities’, this is hardly enough time for a considered response. There is a wealth of new discussion material and examples to absorb and interpret yet most of us won’t really turn our minds to this until the middle of next week.

MJA will generate a comprehensive update regarding the changes and circulate this next week. We shall also share our detailed views about what are the next possible courses of action. The Government continues to insist that this Bill will become law prior to July 1 and it proposes to introduce the Bill in the Budget session of Parliament (May 11).

What’s New and What’s Our Gut Feel

Object Clause

The Object clause has removed the reference to spillover but clearly retains the concepts of additionality and spillover in its wording. All the promotional objectives from the current legislation remain removed. The new clause is restrictive in its terminology.

Splitting Core and Supporting R&D Activities

The need to distinguish between these two classes of activities has been retained and this remains a major concern with the Credit. It should be remembered that the need to split these activities is a first-time feature of the new program.

A “Clearer” Definition of Core R&D Activities

The new definition requires that you seek new information and that you need to do an experiment to uncover the knowledge. The concepts of ’systematic’, ‘investigative’, ‘considerable novelty’ and ‘high levels of technical risk’ have all been removed. The Government’s explanation is that this simplifies the eligibility requirements for core R&D. However, we are concerned that the changed definition may have far-reaching impacts on the operation of the Credit. And there is little time allowed to think through those implications and formulate a response.

A Narrower Dominant Purpose Test for Supporting R&D

The dominant purpose test will only be applied to production activities (apparently not defined) and activities on the exclusion list. The ‘directly related’ test will be retained for the balance of supporting activities. This is the single largest concern with the ED and EM. The supplied examples in the EM clearly spell out a desire to restrict the availability of the Credit across a range of necessary, dare we say, genuine R&D activities. The same concerns remain as those stated by so many parties in response to the Treasury September 2009 Consultation Paper. The dominant purpose test stands to remove most of the support from the vast majority of innovation projects conducted by modern Australian companies.

Lifting Exclusions on Supporting R&D

Given the dominant purpose test, it has been decided that the exclusions list no longer applies to supporting R&D activities. This is sensible and focuses our concern on the likely application of the dominant purpose test.

A New Approach to Software R&D

In a pleasing development, most software R&D will be subject to the same rules as all other kinds of other R&D. The multisales test and the broad-based exclusions have gone. Certain in-house software activities will be excluded from core R&D but will be subject to the dominant purpose test for R&D.

Changes Regarding ‘Expenditure Not At Risk’

The ‘expenditure not at risk’ rule has been clarified to align with the Australian Taxation Office’s interpretation of the corresponding existing rule. We support this announcement as being sensible.

Augmented Feedstock Rule

This rule has been dropped and we are happy to see it die a quiet and polite death. A redrafted provision of the existing feedstock provision will be retained. That space will need to be watched as the redrafted provisions are not yet available.

Enhanced Administration Powers

Most alarmingly, all the proposed enhanced powers for the administrative bodies in the first ED have been retained. In short, taxpayer claims prepared under self-assessment can be unilaterally reclassified and rejected by Innovation Australia based purely on the registration application. MJA finds this unacceptable and will vigorously oppose these changes.

So, is this a Win?

Many will be tempted to see the new ED and EM as something of a win for the post-Christmas lobbying effort and this is understandable. However, the harsh reality is that the main positives are around the removal of some of the more extreme elements that appeared for the first time in the Christmas announcements – augmented feedstock; radical changes to software; a naked ‘expenditure at risk’ provision. The current package leaves us back where we all were when the Treasury delivered its September 2009 paper – a restrictive Object clause legislating additionality and spillover (despite the original public assurances to the contrary); a first-time split between core and supporting R&D activities; a wide-reaching dominant purpose test. Remember, 162 of the 165 responses to the Treasury paper published last year opposed such changes. They were a bad idea then and they remain a bad idea now. Six months on and we have made little progress. It’s time to consider whether the best for all concerned is to have this Bill made subject to a Senate review as an urgent priority.

Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.