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Federal Election 2019 – Impact of Result on R&D Tax Incentive

Over the past six months, the R&D Tax Incentive became a discussion point and the major political parties have differed in their views.

Labor sought to position themselves as prioritizing the R&D Tax Incentive over the coalition government, and had made specific policy announcements including:

• Criticising the programme’s cost reduction in the budget papers, and stating a Labor government would use the R&D Tax Incentive as a means of increasing Business Investment in R&D (BERD);
• A proposed introduction of a collaboration premium whereby companies incurring qualifying expenditures with Australian research organisations such as the CSIRO and universities, would receive an enhanced benefit;
• Indication that a Labor government would review processes for R&D Compliance activity following reports of increased audit activity and claims found to be ineligible;

Labor had also opposed the government’s Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 which sought to enact proposed changes to the R&D Tax Incentive including:

• Annual caps on refundable offsets;
• Changes to the mechanics of how R&D offsets were calculated, including the controversial intensity threshold;
• Administrative changes including the publishing of claimant information;

This bill was subsequently referred to the Senate Economics Committee which recommended that the bill be deferred from consideration and passage into law.

Given the election result and the continuity of the collation government, it is likely that there will be no changes to the administrative operation of the programme. This means claimants should expect ongoing compliance activity, and must pay close attention to guidance published by AusIndustry and the ATO.

The key question becomes whether (or when) the government may seek to again introduce potential legislative changes to the R&D Tax Incentive. And if so:

• Whether such changes would be in the same form as proposed in the previously stalled Bill; or
• Whether any proposed changes would incorporate the Senate Economics Committee’s consultations, which seemed to be widely critical of elements of the proposed measures, particularly the intensity threshold;

The latest federal budget included a reduction in the cost of the R&D Tax Incentive programme over the forward estimates, and treasury officials questioned during April 2019 stated that the government had “given no indication” that they would change their previous decision to amend the R&D Tax Incentive legislation.

Noting the widely reported decline in Australia’s BERD figures, along with the feedback from the Senate Economics Committee review process, any future changes proposed to the R&D Tax Incentive must be considered carefully.

Swanson Reed encourages all sides of politics to commit to preservation of a stable R&D Tax Incentive, and we seek to work alongside AusIndustry and ATO to maintain the programme’s compliance integrity and equitable treatment of companies accessing the programme.