The R&D Tax Incentive – How To Take Some Of The Anxiety Away

August 16, 2020 Kris Gale

Followers of the MJA Update will be all too keenly aware of the uncertainties associated with the outstanding Bill that cuts the value of the R&D Tax Incentive (the Incentive). The Bill pares back value for the Refundable R&D Tax Offset and slashes support for the vast majority of Non-Refundable Offset claimants off the back of a questionable R&D intensity premium measure. The Bill purports to take effect from 1 July 2019, however it has yet to pass. And now, the report from the second Senate Economics Legislation Committee (the Senate Committee) has been delayed until 24 August.

Companies with a 30 June 2020 financial year end have been able to lodge returns for the best part of two months, yet these companies are faced with the prospect of amending tax returns and paying back rebate monies if the legislation is passed with retrospective effect. The problem has been exacerbated with the recent release of the ATO’s Draft Determination that states that salary expenditure linked to JobKeeper payments will not qualify for the Incentive. The date of 24 August is again looming large as submissions regarding the draft are due by that date. MJA will be submitting and is happy to incorporate your thoughts.

In short, many companies submitting 2019/20 R&D tax returns at the moment simply do not know what their correct claim is. This uncertainty compounds the COVID-related uncertainty that we are all currently experiencing. And, if the Federal Government adheres to its current timetable, these uncertainties won’t dissipate any time soon. A whole political process must follow the issuing of the Senate Committee’s report. The ATO will need to turn its draft position on JobKeeper into a final one. These things take time. The attenuated anxieties will grow.

Given that the chorus of the importance of R&D in addressing many aspects of the pandemic has been a uniform one (give or take a few fringe dwellers), it can only be that removing uncertainty and increasing confidence around the Incentive, the Government’s flagship R&D program, is a positive. This begs the question: why wait?

MJA suggests the Government could remove two significant problems with two simple announcements:

1.    Should the R&D Tax Bill pass in any form, the measures will take effect prospectively from an identified date that follows the passing of the Bill.

If this was announced tomorrow, then all parties could focus on the well-made criticisms of the Bill contained in the approximately one hundred submissions received by the Senate Committee. 

2.    R&D salary expenditure subsidised by JobKeeper payments remains eligible for the Incentive and amending legislation will be passed confirming the same.

The government has been very clear that JobKeeper is effectively a social security payment. It was also designed to guarantee employees remain connected to their employers, ensuring a faster national economic recovery as we head out of the COVID recession. Furthermore, JobKeeper is a one in, all in program. Companies we have spoken to have said, in the absence of JobKeeper, they would have laid off staff but not necessarily the R&D staff. So, it is hard to see how JobKeeper can be seen as consideration for a company to do R&D activities as the ATO is arguing.  

Matters regarding the future of the Bill will be clearer following its release on 24 August. However, matters could be so much better if the Government made the two pro-business announcements outlined above tomorrow.

MJA will keep you fully informed of all developments and seek to provide as much peace of mind regarding your successful and continued participation in the program.

Should you wish to discuss this matter further, please do not hesitate to contact Kris Gale on 02 9810 7211 or email kris.gale@mjassociates.com.au