The RDTI & The Federal Budget – The Beat Goes On

May 15, 2024 Kris Gale

As expected, last night’s Federal Budget did not announce any changes to the R&D Tax Incentive (RDTI). MJA welcomes the continued stability of the program, allowing companies to plan their innovation forward spending with ever-increasing confidence.

In terms of industry support, the Federal Government announced its $22.7 billion Future Made in Australia package. Specific measures included:

• An investment of more than $500 million to establish the Battery Breakthrough Initiative to grow Australia’s battery manufacturing capabilities
• Investment of $1 billion in the Solar Sunshot program to support Australia’s ambition to become a renewable energy superpower
• Development of a pathway to support green metals manufacturing via a consultation that will complement the $1.7 billion Future Made in Australia Innovation Fund
• Commissioning of a strategic examination of Australia’s R&D system
• A $38.2 million expenditure commitment in response to the Pathway to Diversity in STEM Review
• A scaling up of the Government’s Women in STEM programs and science engagement programs

Speaking of the stability of the RDTI, the DISR/ATO RDTI Roundtable held earlier this month briefly addressed the fallout from the recent AAT decision, GQHC and the Commissioner of Taxation, that was reported on in our last MJA Update.

It is apparent that, as a result of this AAT decision, taxpayers face the reality that the eligibility of their claimed R&D activities can now be assessed by AusIndustry and the ATO thereby unwinding the almost 40 years of understanding that this was the exclusive province of AusIndustry.

The regulators contend that the decision does not change how the ATO and DISR jointly administer the RDTI. As outlined in the ATO’s Decision Impact Statement, the Commissioner will not review R&D activities unless “they’re put into a position where they must”. Wherever possible, the ATO has said that it will follow normal processes and refer matters back to DISR to make a Finding. 

In terms of explaining what is meant by a ‘must position’, the regulators have referred to exceptional circumstances such as where there is no existing Finding from the IISA Board and it is not practical or possible for DISR to complete an examination within the time limits detailed in s 355-705 of the Income Tax Assessment Act 1997.

We believe that this position is not tenable. The ATO as the sole arbiter of the “exceptional circumstances” where only the ATO, rather than AusIndustry, has the ability to determine eligibility such as in the time limits example provided. This does not make sense. Why is the non-expert body, the ATO, better able to make a time-critical decision than the appointed expert, AusIndustry? 

In fact, we find it impossible to describe any circumstances where the ATO is the better-equipped body to determine the eligibility of R&D activities. Concerns are heightened by recent reports of additional burden being put on taxpayers in risk assessments and audits by being asked to provide detailed information to both regulators on the R&D activities question.

MJA will continue to seek a resolution of this issue such as was proposed by the Board Of Taxation back in 2021, which we reflected upon in our last MJA Update. Stay tuned. 

One final development to be aware of is the fact that the long-awaited Industry Growth Program grants have recently become available for the first time.

At first blush, these grants appear to directly replace the Accelerated Commercialisation grants that were closed following the defeat of the Morrison Government. MJA will monitor developments in this new offering closely and are very available to answer any questions that you may have.

We look forward to working with you all to ensure that the innovation support mechanisms offered by the Federal Government do their utmost in lifting Australia’s R&D performance as we move into the second quarter of the 21^st century.