Home » News » Federal Budget May 2024 – No changes to R&D Tax Incentive, Strategic examination of Australia’s R&D System Flagged

Federal Budget May 2024 – No changes to R&D Tax Incentive, Strategic examination of Australia’s R&D System Flagged

Leading into the May 2024 budget, no changes were anticipated to be made to the R&D Tax Incentive; however, recent media reports in 2024 floated the idea of the Government conducting a review of the programme for potential future changes.

Based on a preliminary review of the 2024 budget material, no material changes seem to have been proposed to the R&D Tax Incentive, which is good news.

In the budget papers for the TREASURY PORTFOLIO, the budgeted expenses for the Research & Development Tax Incentive are noted as:

• 2023-24 Estimated actual: $4,783,200,000;
• 2024-25 Budget: $4,474,720,000;
• 2025-26 Forward estimate: $4,609,984,000;
• 2026-27 Forward estimate: $4,750,590,000;
• 2027-28 Forward estimate: $4,895,375,000.

Some other measures announced in the May 2024 Federal Budget that may indirectly impact R&D Claimants include the following:

• Production tax incentive for the processing and refining of critical minerals and renewable hydrogen;
• Extension to the instant asset write-off (however assets deducted under this provision have not traditionally been eligible for notional deduction under the R&D Tax Incentive);
• Funding for battery and solar panel supply chains and net zero innovation, including for green metals and low-carbon fuels;
• Funding to extend the Tax Avoidance Taskforce, which may potentially contribute to R&D Tax Incentive integrity.

An  AFR article published as the budget was released noted that ‘The R&D Tax Incentive returns money to businesses that invest in developing new products and services. Rebates are expected to increase by nearly $500 million next year and $2.6 billion over five years from 2023-24 to 2027-28, the budget papers show.’

The budget supporting material also noted that ‘To grow our core science and innovation capability, the Government will undertake a strategic examination of Australia’s research and development (R&D) system to grow investment in R&D and build a more resilient, dynamic economy‘. It’s unclear at this stage whether the scope of this review will include the R&D Tax Incentive.

Swanson Reed commends the Government for not appearing to propose any measures that may detract from the R&D Tax Incentive in the near term.

Again this year, there have been calls from some sectors to make significant changes to the R&D Tax Incentive (including changing from a broad, market based, self assessment programme to a grant based system that is assessed based on government identified areas of strategic priority). We believe any such change would be a mistake undermining business confidence and empowerment to make timely and significant investment decisions.

Whilst the cost of the programme is growing, and must understandably be subject to scrutiny to ensure taxpayer value, Swanson Reed will continue to call for stability in the programme as the cornerstone for business investment in R&D.

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