Home » News » December 2024 MYEFO Announces Exclusion for Gambling and Tobacco Companies under the R&D Tax Incentive

December 2024 MYEFO Announces Exclusion for Gambling and Tobacco Companies under the R&D Tax Incentive

December 18th, 2024

The 2024‑25 Mid‑Year Economic and Fiscal Outlook (MYEFO) was released by the Government on 18 December 2024.
 
In what is a new approach to Australian Government R&D Tax Policy changes, a restriction is being applied to specific sectors. The budget papers note:
  • The Government will exclude activities related to gambling and tobacco from Research and Development Tax Incentive eligibility for income years starting on or after 1 July 2025. Research and development activities related to gambling can exacerbate addiction and associated harms, while activities related to tobacco can increase health risks. Excluding these activities will ensure that the Government is not subsidising this type of research and development. 
  • Activities that are solely for the purpose of harm reduction, such as reducing addiction, will remain eligible to receive support. This measure is estimated to increase receipts by $12.0 million and decrease payments by $8.0 million over five years from 2023–24.
The origins of this measure can perhaps be traced back to the release of the R&D Transparency reports in September 2024, and then the subsequent media scrutiny applied, including an AFR article titled ‘Unlikely winners of ATO’s R&D tax rules’ highlighting large claims by Gambling Technology companies.
 
This likely led Treasurer Jim Chalmers to comment that it was ‘problematic’ having gambling companies claim $90m worth of research tax credits in one year.
 
It is certainly the media’s right (and job) to comment on the release of now public information; however, given the complexity of the R&D Tax Incentive, it must be emphasised that it can be very misleading to form a view about a company’s investment in R&D or behaviour as a taxpayer on the basis of a single R&D Expenditure figure, which may or may not appear in the transparency reports. A detailed technical analysis of this is in our update from earlier in the year.
 
To be clear, Swanson Reed are not advocates for the gaming or tobacco industries and have very limited involvement with companies operating in them. We agree that significant public harm can be done by those exposed to gambling and tobacco.
 
However, we are concerned by any measure that reduces the stability of R&D Incentives, and this may lead other industries to wonder if their eligibility may be compromised in future, thereby possibly reducing business confidence to invest in R&D. We also think that R&D Tax Incentives work best when they are broad based, market driven and stable, to allow business to determine where the most effective deployment of scarce R&D Capital should be deployed.
 
The measure also poses some questions on how it would be administered, for example:
  • Will this measure be enacted by changing the exclusions in INCOME TAX ASSESSMENT ACT 1997 – SECT 355.25 OR will the government instead target specific companies and exclude them from accessing the R&D Tax Incentive;
  • To what degree is a company conducting R&D Activities related to gambling and tobacco. For example, If a company is developing software used for gambling industries to attain or process data (but is not directly providing a gambling service) are their activities excluded?
There are possibly some start up companies developing software used in gambling, and whose operations are supported by the Refundable R&D Tax Offset that may be very significantly impacted by this measure.
Swanson Reed is not directly criticising The Government for taking this exclusion approach and acknowledges the issues are complex, but the impact on R&D Tax Policy stability needs to be considered and thought through…. If this exclusion is passed, it would be ideal if The Government (and opposition) could somehow commit to there being no further or ad hoc changes to the R&D Tax Incentive for a long time in order to inspire business trust in the system.
More detail on The Government’s implementation of this change (likely requiring passing of tax law) will likely follow in the new year.

Please get in touch with our office if you require assistance, would like to speak to someone about a potential claim, or check out our website for more information.

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