In launching the innovation and science agenda in December, the Australian Government announced that they would be undertaking a review of the R&D Tax Incentive programme. At present, the review is currently ongoing by a panel led by Bill Ferris and it is expected to report to Government in April 2016. However, the announcement of a review has resulted in companies underlining their apprehensions about changes to the initiative. Most recently, CSL has joined industry appeals to the federal government to refrain from altering the popular research and development incentive amid fears it will be reduced.
Bill Ferris, who is leading the review, has revealed he is considering if the R&D tax incentive could be recalibrated to reward collaboration. Moreover, he noted that Australia was last out of 26 OECD countries that report on collaboration between business and public research institutions on innovation. Ferris further described that in recent decades Australia had been far more successful with research discoveries than it had been in the commercialisation of new products.
Indeed, research and development occurs in universities and in businesses – but there is little connection between the two. Tax concessions are one way to cultivate a partnership between businesses and universities. This would balance government support and mimic successful tax models that are utilised in the United States and United Kingdom. However, as noted in a previous post, the stability of the R&D tax incentive scheme over time plays an important role on R&D expenditure. Thus, the structure of the program should not be altered too drastically.
Likewise, CSL’s chairman John Shine has warned against changing the structure of the program. He notes, “Other countries do provide tax and other incentives to attract hi-tech industry and intellectual property and hi-tech manufacturing… Australia has to be competitive and recognise if a company is going to invest a lot of money in research, which is never guaranteed a success, it does need to be recognised that this is risky and any sort of incentive can help.”
Similarly, medical researcher, Professor Ian Gust, who headed up research and development for CSL for 17 years, said countries that were most successful in R&D had strong government support schemes. Specifically, he warns, “research is now internationally competitive and there’s huge competition between various jurisdictions, any watering down of the incentives in Australia would see Australia put at a tremendous disadvantage.”
Essentially, companies need a stable legislative platform to provide them with the confidence to make long-term decisions in anticipation that support will be available. In fact, Australia’s R&D Tax Cash Benefit Tops OECD Comparison, with Australia topping the globe for loss making entities with the 45 per cent cash back benefit. Whilst there may be opportunity to enhance the efficiency of the R&D Tax Incentive in regards to university collaboration; any changes must not adversely impact the fundamental structure of the programme, which provides a broad-based, easily accessed and significant incentive.
If you would like to discuss the R&D Tax Incentive further, please do not hesitate to contact one of Swanson Reed’s offices today.