The R&D Bill Is Introduced To Parliament

September 21, 2018 Melanie Reen

Yesterday, on the last sitting day of parliament for this month, the R&D tax Bill was introduced in the Lower House. The Treasury Laws Amendment Bill (Making Sure Multinationals Pay Their Fair Share of Tax in Australia) Bill 2018 (the Bill), details the proposals from this year’s Federal Budget to the R&D tax program and incorporates changes from the Exposure Draft that was released on 2 July 2018.

There is little for the Innovation community to get excited about in this Bill, “Making sure multinationals pay their fair share of taxes”. The Explanatory Memorandum (EM) and Second Reading speech suggest the Government wants to move away from supporting “business as usual R&D” to focus on “genuine, additional R&D”. We are unsure what this distinction represents, other than a severe contraction of innovation support. If the Bill passes, the trending drop in BERD (Business Expenditure on R&D) is likely to continue.

Essentially, the Bill still proposes significant cuts to innovation support in that:

• Companies eligible for the Refundable Tax Offset will be entitled to an R&D Premium of 13.5% linked to the corporate tax rate (which is a rate cut of 2.5%) and the Refundable component of the Refundable Tax Offset will be capped at $4m (excluding clinical trials)
• Companies eligible for the Non-Refundable Tax Offset will be entitled to an R&D Premium at a sliding offset rate based on R&D intensity linked to the corporate tax rate. If the statistics used in the EM are accurate, then about 50% of these companies will see a more than two third cut to their current rate of support.  We suspect that there may be far greater than 50% of companies with such a significant cut

This Bill differs in 5 key ways from the Exposure Draft and these can be broadly summarised as follows:

1. The government has clarified that R&D intensity will be calculated on the basis of total expenses as reported in Item 6 of the company’s Tax Return and not the broader notion of total expenditure
2. Clinical trials have been defined to provide greater clarity for the purposes of the exclusion to the Refundable Tax Offset cap
3. The rules relating to clawback and Feedstock adjustments have been amended to reflect the cuts to the proposed rates
4. Clawback amounts will be excluded from the income test for ESICs (early stage innovation companies)
5. The annual publication of all taxpayer names and amounts claimed will be delayed 2-years in the interests of protecting commercially sensitive information

MJA is encouraged that these changes reflect aspects of the consultative process on the Exposure Draft in July 2018, but we note that the submissions to that process have not been made available to the public.  We understand that the Bill is likely to be referred to a Senate Economics Legislative Committee and we hope that the Committee opens up a more transparent consultative process.

MJA will be watching closely the progress of the Bill and will be working with the stakeholders within the Government, opposition and cross-bench as well as industry groups to ensure that Australia’s innovation culture continues to receive adequate government support. We will, as always, continue to keep you updated.

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