R&D Tax Incentive – Response to the Review

Research Australia has made two submissions into the federal government’s R&D Tax Incentive review.

R&D Tax Incentive Submission 2016

R&D Tax Incentive Submission 2015

Research Australia supports the report’s recommendations to:

  • maintain the current eligibility criteria
  • introduce an incentive to encourage collaboration with publicly funded researchers
  • to release more information about claimants.

Research Australia has opposed the application of a new $2 million cap to small caps that are seeking to commercialise HMR and proposed a modification to a recommendation that would limit the R&D Tax Incentive to more research intensive companies.

The Government will now consider the recommendations of the Review together with the responses from the public consultation and then formulate its response, which is expected to be subject to another round of consultation, probably early next year.

R&D Tax Incentive Review

As part of the National Innovation & Science Agenda, the Government has commissioned Innovation and Science Australia to undertake a review of the R&D Tax Incentive.

While Research Australia proposed some possible minor amendments to the R&D Tax Incentive, we argued that on the whole the R&D Tax Incentive is already performing well against the Review’s criteria of effectiveness, integrity and encouraging additional R&D. Any changes to the R&D Tax Incentive at this point in time should be limited to improving the way it is administered.

R&D Tax Incentive Review

Reduction in value of R&D Tax Incentive

The Senate Economics Legislation Committee has launched an Inquiry into the Tax and Superannuation Laws Amendment (2014 Measures No.5) Bill. Schedule 3 of the Bill proposes reducing the rate of the R&D Tax Incentive by 1.5%. While ostensibly this is to align the rates with the proposed change in the Company Tax rate, in fact this measure will disadvantage innovative research intensive companies, and particularly those that are still in early stage development of their products. In fact the saving to the Budget over four years is expected to be around $600 million. Research Australia has made a submission to the Committee opposing the reduction in the rate of the R&D Tax Incentive on a number of grounds.

Pre Budget Submission 2014

Each year the Treasurer invites the Australian community to make submissions in relation to the preparation of the budget for the following financial year. Research Australia’s recommendation are:

  • Maintain the aggregate real value of Commonwealth Government funding for health and medical research across all funding programs.
  • Fund the implementation and monitoring of the McKeon Review recommendations.
  • Increase funding for research to support the effective and rapid translation of new discoveries into practice.
  • Increase funding for health systems research to increase our capacity to analyse and identify best practice for the Australian health care system and to increase research into the most successful, effective and efficient delivery mechanisms and structures for implementing best practice.
  • Expand the mandate of the Australian Commission on Safety and Quality in Health Care to include efficiency as well as safety and quality, and provide incentives for health care providers to nominate existing practices and initiatives to the Commission for adoption as part of the Healthcare Standards.
  • Increase funding for population health and preventive health research to improve the effectiveness of preventive health campaigns and identify emerging trends in the health and disease profile of the Australian population.
  • Retain programs that support Australian research and development (R&D) and innovation, including Commercialisation Australia and the R&D tax incentive.

Pre Budget Submission 2014

Business Tax Working Group

The Australian Government formed a Business Tax Working Group (BTWG) in 2012 to investigate the options for reducing the corporate tax rate in a revenue neutral way by offsetting the cut in the rate with the removal of existing business tax concessions. In response to the Working Group’s discussion paper, Research Australia made a submission focused on the potential abolition of the Research & Development Tax Incentive. The submission opposed any change on the basis that the R&D Tax Incentive had not yet been in place long enough in its latest form for an evaluation to be made of its effectiveness or the impact of its removal.

On 24 October 2012, the BTWG released the draft of its final report. It did not recommend changes to the R&D Tax Incentive or to other business concessions such as the depreciation allowance. While the BTWG was in favour of a further cut in the corporate tax rate when economic circumstances permit, ‘a cut in the company tax rate funded from within the business tax system should not be pursued at this time’. Research Australia continues to monitor the final report and the Government’s response.

Business Tax Working Group