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Academics call for R&D Tax Incentives to be Diverted to Direct Funding Initiatives, Swanson Reed Disagrees

In an article published in the AFR on 30 April, Deputy vice-chancellor of research at the University of Sydney Emma Johnston called on the government to fund research and innovation directly (e.g. via a grant), rather than through tax incentives.

It was noted as being part of a push for greater mobility between the corporate and business sectors, which leading academics say will boost investment in research and innovation.

Professor Johnston was quoted in AFR stating that the R&D tax incentive is “an indirect mechanism of funding research and a lot of that research does tend to be market research, rather than primary research”.

She noted that other countries spend more on R&D than Australia (i.e. 1.8% of GDP, as compared to 5% in Israel and Korea) and called on universities to promote a research to commercialisation pipeline, which would be supported by direct incentives for business to back university-generated ideas.

While this is the view of Professor Johnston, it is not government policy and in fact, before the election, new Minister for Industry and Science Ed Husic indicated he would look at making the R&D Tax Incentive program more friendly to software-based start-ups.

Whilst Swanson Reed respects the important role that academics play, we strongly disagree with these comments for a number of reasons:

• 1. The R&D Tax Incentive has become engrained as a critical source of funding for small business who are conducting R&D activity. Whilst the programme’s current self assessment system is not perfect, to remove this and replace it with the uncertainty of companies seeking access to the programme being at the mercy of a Government assessment/merit process would present significant uncertainty and challenges to business;
  2. The innovation that arises out of (1) Australian small and micro businesses is vastly different to that which arise from (2) a university/academic institution OR from a larger business that may have the resources and connections to attain a directly funded grant. Both types of R&D are required within the Australian eco-system;
  3. Requiring the government to decide which projects qualify for funding would slow down the process of commencing and progressing a project. It’s important that a broad based and well understood tax incentive is available for companies to be able to rapidly instigate projects. If a process of bureaucracy, such as applying for a grant, was required to be completed (taking months or years) before funding was known and R&D activity could commence, it would drastically slow down the agility of business R&D to be responsive to Australia’s current or emerging challenges;
  4. Countries such as the UK and the USA have recently increased tax incentives for business to conduct R&D activity in their local jurisdictions. Reducing Australia’s R&D Tax Incentive would diminish the certainty of companies’ incentives to conduct projects here, and thus our competitiveness as a global destination for R&D activity;
  5. Following the significant legislative amendments to the R&D Tax Incentive passed by both parties in October 2020 (with Bipartisan Support), Australia’s R&D Tax Incentive has only recently emerged from a turbulent decade. Industry has widely applauded the recent changes as providing stability to the programme that has been craved after a period of ongoing instability, where the programme was subject to actual and proposed changes. To take this stability away would be a terrible mistake.

Visit our news page for more recent R&D Tax Incentive developments, or get in touch with our office if you would like to speak to someone about a potential  R&D claim.