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Business Council renews calls for increase to R&D Tax Incentive Expenditure Cap

The initial cap on eligible expenditure under the R&D Tax incentive was originally introduced around 2015 and set at $100 million.

The R&D Tax Incentive (Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 then introduced adjustments to the intensity threshold ranges, increasing the cap on claimable R&D expenditure from $100 million to $150 million.

In recent years there has been public criticism from industry leaders such as Dig Howitt, the CEO of Cochlear noting that the current tax regime hinders large companies’ ability to undertake additional research and development (R&D).

As covered by Accounting Times and The Australian in recent weeks, The Business Council of Australia (BCA) has recently called for the immediate removal of the $150 million annual expenditure cap on claims under the research and development (R&D) tax incentive. The BCA argues that Australia cannot afford to delay changes pending the completion of a landmark review of the system.

The BCA believes that removing the R&D expenditure threshold, would lead to a surge in innovation. According to BCA chief executive Bran Black, the private sector wants to invest more in Australian R&D, but current policy settings are holding back investment that could transform local products, create jobs, and drive economic growth.

“If the threshold were removed, we could see a flurry of Australian innovations that help solve some of our biggest challenges, including those in defence, energy, health, and cyber,” Black said.

The Government is currently undertaking a landmark review of the system to improve R&D investment, with levels sitting at a two-decade low. The review’s terms of reference include maximising the value of existing investment in R&D, strengthening linkages between research and industry, and supporting the achievement of national priorities.

However, with the review not complete until the end of 2025, Black has called for a change to the scheme by abolishing the threshold or, at a minimum, increasing it to $250 million and indexing it. He argues that the government cannot afford to wait to address Australia’s declining investment levels and low productivity.

“We need to create market incentives for non-taxpayer funded research, so businesses aren’t actively disincentivised from doing more R&D in Australia,” Black said. Black also stated that Australia should aim to increase R&D spend as a proportion of GDP to 3%, up from the current 1.7%.

As part of the R&D review, the BCA will advocate for a more comprehensive and coordinated strategy.

Swanson Reed supports BCA’s call for the removal (or increase) of the $150 million cap on R&D tax incentive claims, and this should ideally happen at the earliest. In late December 2024, The Government announced changes to the R&D Tax Incentive to exclude Gambling and Tobacco claims. This change likely will require the passing of legislation and in theory, removal (or increase) of the $150 million cap could be done as part of the same legislative instrument.

Swanson Reed does however note that the budget is coming under pressure and whilst the removal (or increase) of the $150 million cap on R&D tax incentive claims would be nice and potentially lead to spillovers, our view is that any change should NOT be introduced at the sacrifice of other elements of the R&D Tax incentive in its current form. In particular, we view there should not be any further changes such as:

• Reducing support for smaller companies who are more reliant on the R&D Tax Incentive than the large companies that would benefit from an increase to the $150 million cap; or
• Any further reductions in the scope of activities or companies that qualify for the R&D Tax Incentive to maintain a broad based, market driven and stable system.