Chartered Accountants Australia and New Zealand (CA ANZ) is pleased to see the Federal Government has at last responded to the 2016 Review of the R&D Tax Incentive, in this year’s Federal Budget.
The announcement also follows the release of Innovation and Science Australia’s 2017 Strategic Plan - Australia 2030: Prosperity Through Innovation.
Michael Croker, CA ANZ’s Head of Tax, says the announcement lifts some of the cloud that has hung over the R&D sector for a while now.
“R&D activity declines in an environment of uncertainty over future policy direction. Investment-grade certainty and long-term stability is vital,” Croker said.
“What’s needed now are rapid follow-up discussions with AusIndustry and the Australian Taxation Office so that eligible businesses and R&D specialists in our membership can get on with the job of implementing the new model from 1 July 2018.”
“A major overhaul of the R&D Tax Incentive was neither required nor desirable but we also acknowledge the need for a fiscally sustainable broad-based R&D incentive to attract R&D investment.
“On the positive side, the top R&D premium rate of 12.5c/$ will provide a real boost for dedicated R&D companies who are well over the 10% intensity threshold. The increase in the claim cap to $150 million was also welcome.
“Another good feature of the new model is the pegging of the R&D tax benefit to the corporate tax rate. This will ensure that future company tax rate cuts can happen without changing the level of R&D support each time.
“CA ANZ supports the $4 million annual cap for the refundable R&D offset, in line with our pre-Budget submission to Government. The exclusion of biomedical clinical trials from this cap is a good policy decision.
“On the downside, we have particular reservations about the aggregate effect of the incremental intensity thresholds, on top of the progressive changes to the incentive that have been occurring since the incentive was re-designed in 2011.
“The 2011 re-targeting was to ensure a greater share of the R&D program budget went to start-ups and SMEs, and AusIndustry’s data reveals this has been successful.”
Mr Croker said it was important to view the Budget announcement in the context of the cumulative impact of the incremental intensity thresholds for the non-refundable R&D offset.
“Two out of the four R&D benefit rates are lower than the current rate. This will operate on top of an increasingly narrower administrative interpretation of ‘core R&D activities’ and on top of the $150 million claim cap,” Croker said.
“The impacts of the last R&D incentive rate cut in 2016 are yet to even flow through to the Government’s program budget as 2017 claims are only just being lodged.
“We are concerned that for many Australian businesses, the risks and complexity around the incremental intensity thresholds could be the straw that has a tipping-point effect – putting registering for the incentive into the ‘not worth it’ category.
“As R&D intensity is a ratio of R&D expenditure to total company expenditure, high-cost industries such as manufacturing will likely be disproportionately affected by the new intensity measure. Many will be forced into the first R&D rate band of 4c/$, a substantial cut to the current 8.5c/$ benefit.
“Risks inherent in the new model include the increased level of complexity in the calculations to comply with the new marginal R&D premium rates; and less certainty in budgeting for the R&D refund amount.
“The R&D Tax Incentive is promoted by Government as being ‘generous, easy to access and open to businesses in all industry sectors’, as it should be.
“It’s time for all stakeholders in the public and private sector to live up to the rhetoric and ensure the R&D tax incentive plays its role in creating an innovation nation.”
Australian Federal Budget 2018-19
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