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Exposure draft released for exclusion of gambling and tobacco companies under the R&D Tax Incentive

The December 2024 Mid‑Year Economic and Fiscal Outlook (MYEFO) was released by the Government on 18 December 2024 and announced that 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.

The Government has now released an exposure draft for Treasury Laws Amendment Bill 2025: 4 Exclusion of tobacco and gambling 5 related activities from the Research and 6 Development Tax Incentive which is the legislative instrument that would enact the announced exclusion.

As expected, the legislation appears to enact the exclusion by adding the following within the activity exclusions list within 355-25(2) of Income Tax Assessment Act 1997. The exclusions are defined as follows:

• (i) an activity that relates to any of the following, unless the 15 activity is covered by subsection (3) (harm minimisation purpose):
  • (i) a gambling service (within the meaning of the Interactive Gambling Act 2001);
  • (ii) gambling;
  • (iii) a gambling-like practice;
• (j) an activity that relates to any of the following, unless the activity is covered by
  • (i) tobacco (see subsections (5) and (6));
  • (ii) a tobacco product (as defined in section 9 of the Public Health (Tobacco and Other Products) Act 2023);
  • (iii) a tobacco product accessory (as defined in section 10 of the Public Health (Tobacco and Other Products) Act 29 2023);
  • (iv) a vaping good (as defined in section 41P of the 31 Therapeutic Goods Act 1989);
  • (v) tobacco extract;

Harm minimisation purposes are defined as follows:

• For Gambling subsection (3) (harm minimisation purpose):
  • An activity is covered by this subsection if the activity is conducted solely for the purpose of generating new knowledge about minimising harm from gambling services (within the meaning of the Interactive Gambling Act 2001), gambling or gambling‑like practices, in relation to a person or the Australian community.
• For Tobacco subsection (4) (harm minimisation purpose):
  • An activity is covered by this subsection if the activity is conducted solely for the purpose of:
  •             (a)        generating new knowledge about the therapeutic use (within the meaning of the Therapeutic Goods Act 1989) of therapeutic goods (within the meaning of that Act) for minimising harm from a thing mentioned in any of subparagraphs (2)(j)(i) to (vii); or
  •             (b)        generating new knowledge about ceasing the ingestion or transfer of nicotine into the human body.

The examples in the EXPOSURE DRAFT EXPLANATORY MATERIALS have also clarified that activities related to these excluded industries (even if not directly conducted by companies offering gambling services) would be subject to the exclusions:

Example 1.1: R&D activities related to gambling

Company A is developing a real-time forecasting engine to improve predictions for sporting events during the 2025-26 income year. This forecasting software will consolidate interconnected data from various industry sectors in a novel way and deliver dynamic insights into win probabilities, as well as better targeted odds.

Company A’s R&D activities consist of experimental development of new algorithms and simulation technologies to power the new forecasting engine. Company A self-assesses that the outcome of this development process cannot be known or determined in advance, follows a systematic progression of work, and is conducted for the purpose of generating new knowledge.

Company A would normally apply to register its R&D activities within 10 months of the end of the 2025-26 income year. However, as these R&D activities are related to gambling services, they are excluded from being core or supporting R&D activities. Company A has not demonstrated that its R&D activities were conducted for the sole purpose of generating new knowledge about minimising harm from gambling services.

As noted in our prior updates:

• 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.
• 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.

Consultation on the draft legislation is open until January 2026.