Better Targeting the Research and Development Tax Incentive – Exposure Draft Legislation

This submission responds to Treasury’s exposure draft legislation to better target the Research and Development Tax Incentive (R&DTI). Research Australia supports the aim of a sustainable incentive that drives additional business R&D, and welcomes the proposed extension of the refundable offset from 10 to up to 15 years for firms doing R&D on therapeutic goods, but maintains that several elements could cut support for health and medical research and innovation companies, which stay pre-revenue for long periods while moving through clinical validation and regulatory approval. It notes that Australia invests about 1.7% of GDP in R&D, against an OECD average of 2.72%, and that business R&D has been stuck at 0.93% of GDP. It makes six recommendations: remove the company-age limit and base eligibility on genuine innovation and turnover; broaden the therapeutic goods test to cover diagnostics, devices, clinical manufacturing and enabling technologies such as AI-enabled drug discovery and genomics; keep supporting R&D activities eligible, including manufacturing for clinical trials, citing AusBiotech analysis that removing them could cut refundable offsets by up to 60%; protect genuine university, hospital and institute spinouts from inheriting the age or turnover of the originating institution; create a low-cost binding determination or safe-harbour process run by the ATO and Industry Innovation and Science Australia; and align the R&DTI with the Innovative Businesses CGT Concession. A case study of La Trobe University spinout AlleSense illustrates the issues, and the submission recommends guidance, worked examples and regular review.