After 10 Long Years, Is The RDTI Going Large Again?

December 19, 2024 Kris Gale

Did Someone Say ‘Big End of Town’?

The recent publication of the 2021/22 RDTI Transparency Report has generated a great deal of attention. It provided the dollar figure claims of over 11,000 companies and some fascinating trend data. It also raised a number of questions about the absence of many large companies, albeit it was noted that the report excluded entities with substituted accounting periods that commenced before 1 July 2021.

It also showed that the freshly-legislated annual claim cap of $150 million only applied to Atlassian who disclosed R&D expenditure of $200 million. And, under the former cap of $100 million, only CSL ($129.2m)) and Cochlear ($115.6m) would have been impacted.

Given the history of the uncapped years of the RDTI (2011 -2015) and the predecessor program, the R&D Tax Concession (1985 – 2011), where much larger claims were being booked against the eligible definitions of R&D, the question has to be asked ‘What’s going on at the big end of town?’

And it seems that this question is now being posed at a senior level in the Federal Government as it launches the Strategic Examination of R&D (Strategic Review) initiative.

The Strategic Review will be led by an independent expert panel and will consider opportunities to:

• Maximise the value of existing investment in R&D
• Strengthen linkages between research and industry
• Support the achievement of national priorities
• Drive greater R&D investment
• Uplift Australia’s overall R&D intensity

The terms of reference for the examination are available here:

A discussion paper will be released in the New Year.The examination will report its findings by the end of 2025.

The Strategic Review will be led by Robyn Denholm, Chair of Tesla.

Her introductory remarks have made fascinating reading.

Industry Minister, Ed Husic, has been positing an R&D target of 3% of GDP for some time. Denholm is more ambitious. She said her aim is to “at least double” Australia’s current R&D investment level of 1.68 per cent before the end of 2030”. She also said the “big end of town” should play a much more active role, arguing that startups alone “can’t make the gap unless we increase by a factor of hundreds the amount of R&D spending”. There are those words, “the big end of town”, words that have not been uttered in discussing R&D policy in many a year.

Tech Council chief executive, Damian Kassabgi, has said the government’s flagship RDTI program is serving small businesses and startups well with “generous” incentives, but caps on larger companies’ claims are driving some overseas.”

“Companies get to a certain size, and what you see is they start making a decision as to ‘Is it worth doing further R&D in Australia? Or should we take incentives that Singapore offers, or the US, especially, offers,’” he told InnovationAus.com.

So what is going on with large companies and the RDTI? I believe that the answer in large part lies with the introduction of the $100 million claim cap in 2015 by the Coalition Government. By the stroke of a pen, for many organisations, the RDTI went from being an incentive to a tax break. The introduction  of the cap was a sharp shock to R&D culture. The RDTI had been driving behaviour, both internally and externally, to motivate increases in our national business R&D capability. But the cap was implemented with a confused message around matters such as genuine R&D, additionality and affordability and companies responded accordingly.

Where we used to see true organisational responses to the program such as R&D conferences and company-wide results sharing, the shift was to one of the RDTI being seen as a tax compliance task. Add in the audit experiences of companies with the ATO and AusIndustry and other tax dimensions such as franking and thin capitalisation rules and the result has been that the program has dropped off the priority radars of large corporates.

From a personal point of view, prior to 2015, if I presented current issues regarding the program at relevant tax and technical conferences, I could fill a decent-size room and (almost) entertain the attendees. Post-2015, it would be me, the chair, some family members and a couple of the venue catering staff.

The Strategic Review presents a chance to get large Australian company R&D going again and this has to be, in no small measure, via the agency of the RDTI. MJA will be in there, boots and all, participating in the Strategic Review and I’d love to hear your views as to how the program can help achieve the Denholm 3.36 magic number.

Breaking News: Gambling & Tobacco Companies To Be Ineligible for the RDTI

As part of the Mid-Year Economic and Fiscal Outlook (MYEFO) 2024-25, the Government has announced an amendment to the RDTI program to exclude activities related to gambling and tobacco for income years starting on or after 1 July 2025.

Public reaction has been swift.

Responsible Wagering Australia CEO Kai Cantwell said the sector not been consulted and that the decision sets a “dangerous precedent for how tax policy could be misused in the future”

“This slippery slope opens the door for tax policy to become a tool of moral judgment rather than a driver of economic growth,” Ms Cantwell said in a statement.

“If I represented fast food, alcohol, fossil fuels or any other industry that face similar criticisms, I’d be worried. This cherry-picking approach undermines the neutrality of the tax system and leaves businesses guessing who will be targeted next.”

The “Who’s Next?’ question is a valid one. The program has always legislated excluded activities but never excluded entire industries. Moving on from its 40 year old position of being technology agnostic may have wide-reaching implications. The relevant questions touch on matters of political and corporate philosophy and will be the subject of the next MJA Update which we will deliver in January.

Compliments of the Holiday Season
2025 is just around the corner and it promises many challenges, not just in the field of government support for Australian R&D! Would we want it any other way?

I’d like to thank all who have supported MJA throughout the year in a myriad of ways. MJA continues to love what we do and we are privileged to get the opportunity to share experiences with so many wonderful people and organisations.

And I would like to wish all our readers a very merry Christmas and a relaxing and rewarding holiday season!