Are We There Yet? Are We There Yet? Are We There Yet?
“If you kids don’t keep quiet, I’ll turn this car around and there will be no Duff Gardens for you!”
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.
R&D Tax Credit Opens For Business
Great News For SMEs Down The Road
The Federal Government has confirmed that the revised start date of the R&D Tax Credit will be 1 July 2011 in a joint release from the Treasurer and the Minister for Innovation, Industry, Science and Research.
In a sweetener for SMEs, loss-making claimants will be eligible for quarterly payments of their Credit entitlements from 1 January 2014. Something to look forward to!
The text of the press release appears below.
CROSSBENCH SUPPORT MEANS NEW R&D TAX CREDIT WILL START ON 1 JULY 2011
Australian companies will become more innovative and globally competitive thanks to the new R&D tax incentive.
The Gillard Labor Government’s $1.8 billion R&D Tax Credit will deliver more funding to innovative firms – including manufacturers, ICT and biotech – increasing productivity and Australia’s national income.
This builds on Labor’s policy reform agenda of the past four years and will be a major benefit for businesses that innovate and use R&D as a platform for future growth.
Today we welcome crossbench Senators announcing their support which means the parliamentary road-block put in place by the Coalition will finally be removed.
The new and improved Credit will target more funds to genuine R&D deserving of public support – good news for industry and better value for taxpayers.
It will deliver a 45 per cent refundable tax credit to companies with an aggregated turnover of less than $20 million and a 40 per cent non-refundable offset to all others.
This will allow more firms to benefit from our massive boost to the innovation, science and research budget, helping them grasp the opportunities of our transition to a cleaner economy.
We welcome the commitment of industry, the Greens and independent parliamentarians who have put good policy ahead of political posturing in supporting this reform.
The development is the culmination of an extensive consultation and negotiation process.
Following discussions with the Greens, the Government will introduce quarterly payments for small and medium businesses from 1 January 2014. These firms will get their credit sooner, significantly improving their cash flow and incentive to invest in R&D.
The deferral of the start date to 1 July 2011 has an overall impact of $40m, with a negative impact of $310m in 2011-12 and a positive impact in 2012-13 of $270m.
The Government will continue to work in partnership with the business community to get the most from this landmark reform. An advisory group will be established through the Innovation Australia Board to monitor the implementation and operation of the Credit. The Government, through AusIndustry, will run an extensive education program to ensure firms are kept up to date.
MJA will keep you informed of all major developments as the Credit legislation becomes law.
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.
R&D Tax Credit Is On The Runway
The Minister for Innovation, Industry, Science and Research, Kim Carr, has given a strong indication that the R&D Tax Credit is set to effectively commence on 1 July 2011.
Questioned earlier this week in a Senate Estimates hearing, Senator Carr stated that the matter will be brought on for debate in the new Senate where the Bill is likely to attract majority support. The composition of the Senate changes on 1 July 2011 when the Greens will assume the balance of power in the Upper House.
Senator Carr has also apparently backed down from his position of making the R&D Tax Credit legislation retrospective to 1 July 2010. As we have been suggesting for some time, the revised start date is likely to be 1 July 2011.
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.
Welcome Back My Friends To The Show That Never Ends : The R&D Tax Credit
And welcome, albeit belatedly, to 2011. In our first MJA Update of the year, we will look at the comments made by Senator Carr in last Friday’s AFR (click to view) urging for the current R&D Tax Credit Bill (the Bill) to pass through the Senate unmolested in the name of fiscal consolidation. It is possible that the Bill could be presented to the Senate as early as next week.
Thar She Blows!
Senator Carr has urged that the Senate pass the Bill as the current scheme was unsustainable based on new government projections that see the cost of the program blowing out to $2.4 billion in 2012/13. Senator Carr states: “At a time when the government is looking at fiscal consolidation we are maintaining expenditure of R&D, but we can’t sustain that unless there is reform of the system for genuine research and development.”
We welcome the new focus on program cost as a driver of the reforms. It now seems that the Government’s rationale for the proposed regime does include an explicit recognition that the Credit will significantly limit R&D claims owing to the altered definitions of R&D activities and expenditures. The question remains : to achieve the Budget targets, do we need to fundamentally rewrite the eligibility criteria?
Working Without A Net
The new government projections have arrived without any available modelling to test the assumptions. So we are again working without a net but we think that the following may be safely said.
The “blow out” figure must include the 175% Incremental Concession (the Premium) which we have previously shown to be contributing about 30-35% of the cost of the current program. In opposing the definitional changes to R&D activities/expenditures, no-one has called for the retention of the Premium. Any “blow out” attributable to retaining the current definitions will have much of the wind taken from its sails once the closure of the Premium is taken into account in the projections.
We have consistently argued that closing the Premium is likely to completely pay for the higher base rates of the Credit and the introduction of foreign-owned IP claims. We welcome the release of Treasury modelling that shows that further change is necessary either to achieve revenue neutrality or even a degree of fiscal windback.
Let’s Keep It Simple
Let’s assume that the case for further cost control can be made out in the current government spending climate.
There are two simple options that would be saleable in the marketplace that would avoid all the uncertainty and angst associated with the proposed rewrites contained in the Bill:
- Introduce a reviewable annual claim cap at the company group level. The cap could be calculated on available claim data and could seek to limit the ability of, say, the top 25-50 claiming groups to access the Credit.
- Wind back the proposed rates from 10c/15c to a more modest combination of levels.
Clean and simple. Yet the Government seems unwilling to engage in any dialogue regarding either of these suggestions. This is why so many commentators are concerned that the Bill actually reflects a philosophical shift that seeks to end support for business R&D, introducing a more tightly controlled regime based around supporting business research only.
Now is the time to reignite this debate. With cost control now to the forefront of the discussion, we need to see the Treasury modelling and to explore the above cost-saving alternatives to a fundamental rewrite of the R&D definitions with all the well-documented issues and concerns.
The fact that the current Bill appears to establish a world where the Credit only supports unsuccessful commercial R&D has led many to ask whether the new program contains any real incentive effect at all. This will be the subject of our next MJA Update.
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.
R&D Tax Credit Bill Reintroduced
The R&D Tax Credit has been reintroduced in the first sitting of the new Federal Parliament.
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 R&D Tax Incentive – Like the Footy Finalists, Take It One Week at A Time
- R&D Tax Credit finally passed through the Senate
- Alas, poor R&D project, we knew you well
- Are We There Yet? Are We There Yet? Are We There Yet?
- MJA on Switzer
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