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MJA Updates

The R&D Tax Incentive and the Federal Election: Innovation Policy is a Chalk And Cheese Affair

May 16, 2019 Kris Gale

Innovation policy seldom makes the front pages and the chances have further slimmed since the poor reception from the electorate for Malcolm Turnbull’s National Innovation & Science Agenda back in 2015. However, there has been some real heat in the innovation policy debate between the major parties in the lead up to Saturday’s Federal Election.

The Coalition has indicated a ‘business as usual’ (there’s that phrase again) approach if returned, with an ongoing commitment to its 2017 National Science Statement with no major funding announcements for research or infrastructure. Meanwhile, Labor has committed to a total R&D expenditure figure of 3% of GDP by 2010 and a thorough review of the innovation system, seeking to leverage business investment.

When it comes to the R&D Tax Incentive (the Incentive), there is a distinct polarity.

Minister for Industry, Science and Technology, Karen Andrews, has indicated that the Coalition will reintroduce a modified version of the 2018 Budget Bill that was rejected by this year’s Senate Economics Legislation Committee report. And she has emphasised that the focus continues to be on the following: “What many people are saying is that they want to get people who have rorted the system, out of the system, and I agree absolutely with that, because we found there was a significant amount of support flowing into R&D activities that businesses would have been doing anyway,…”

We have dealt with these issues many times in the MJA Update. Suffice to say here, the “rorters” deserve to be treated harshly but the Government concedes that they are very much in the minority. As for the ‘doing it anyway’ furphy, it is not an eligibility criteria of the Incentive that the taxpayer would not have carried out the R&D but for the Incentive. The hope is that this misunderstanding of how the Incentive works is not translating into the current audit regime being delivered by AusIndustry and the ATO. Our concern is that this may well be the case.

Shadow Minister, Kim Carr, has made a very public commitment to the Incentive and its reform.

A key plank of the announcement was that firms that collaborate with researchers in universities and public research agencies to create new knowledge will be eligible for a 10 per cent premium. The premium could be claimed by firms that engage in activities such as:
• Cooperating with a university or the CSIRO to develop an innovative new product.
• Embedding industry researchers within a university facility.
• Employing recent PhD graduates in their first three years of employment.
• Hiring PhD students to do industrial research with a company.
Labor will also said that it will manage the R&D Tax Incentive in a financially sustainable way (read that as being that the rates of basic offset are likely to fall) and ensure effective compliance while encouraging firms to participate appropriately in the program.

The Incentive was introduced in 2011 and this election is a watershed moment. Recent figures show that program participation and cost has been falling significantly in recent financial years. Further, the recent RDTI Roundtable indicated the significant difference of views around key eligibility issues in fields such as computer software development held by companies, industry associations and advisers as opposed to the regulators. The negative fallout in the marketplace from claim audits has hurt taxpayer confidence in the utility of the program. The end result is that BERD has fallen below 1% of GDP and we are genuinely slipping down those international ladders of comparison.

Surely, all stakeholders need to come together after Saturday, whatever the result, to secure a valuable and viable R&D Tax Incentive that helps turn our innovation economy around. For those who disagree, we welcome your point of view. Come at us.

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

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