R&D Tax Bill Effectively Put On Hold By Senate Committee

February 12, 2019 Kris Gale

The Senate Economics Legislation Committee tabled its report on the legislation provisions surrounding the Research and Development Tax Incentive (the Incentive) yesterday after a four month inquiry.

In its report, the Coalition-led committee recommended the Senate “defer consideration” of the Bill until “further examination and analysis of the impact is undertaken”.

The specific recommendations with regards to the Incentive are as follows:

• the approach to the $4 million cap on the refundable portion of the Incentive should be refined, noting investment decisions already taken by eligible taxpayers; and
• the formula for R&D intensity is refined, noting inherent differences in R&D intensity across industries and impacts on businesses with large operating costs.

Assuming the Government accepts the report (which is virtually guaranteed), this sees an  effective end to the retrospective legislation in its current form as there will be no opportunity to debate and pass the package prior to the closure of Parliament in the lead up to the next Federal election.

This means that there is now some clear air to reflect on what are the suitable reforms required for the Incentive, including the relevance (if any) of the R&D intensity test, and to tackle the increasingly-public concerns about the recent performance of AusIndustry and the ATO in the interpretation of eligible R&D activities and expenditures, the definitions of which have not changed since the introduction of the Incentive in 2011.

The reboot of the R&D Tax Incentive National Reference Group (NRG) would be a tremendous first step in getting stakeholders together to resolve what are clearly pressing concerns. The advantage in any discussions going forward is that companies, advisers and government should always want the same thing: full eligible claims in the hands of eligible taxpayers. We must always remember that.

Should you wish to discuss this matter further, please don’t hesitate to call Kris Gale on kris.gale@mjassociates.com.au or 02 9810 7211.