Opposition Comments on Government’s Revised R&D Tax Reforms Passed From the Federal Budget

October 26th, 2020

When the federal government announced in December 2019 that they would reintroduce their previous R&D Tax Reform bill with a proposed start date of July 2019 for FY20, it was met with widespread condemnation from industry leaders.

The bill reintroduced at that time was largely focused on savings measures, and was a slightly modified version of a previous reform bill, which did not pass through the Senate. The Senate Economics Committee had noted concerns around the proposed intensity threshold and refundable offset cap that were at the centre of the reform proposals.

The Government’s R&D tax budget announcement on 6 October largely backed away from the controversial retrospective reforms, and contained some additional benefits not previously anticipated which are to apply from FY22. These budget measures favourably exceeded expectations of those who were watching closely, and have largely been applauded by Industry.

The opposition Labor party this week has labelled the reforms as a “missed opportunity”. In an article authored by Innovation Spokesman Kim Carr, the following was noted:

  • The R&D Tax Incentive is especially important to manufacturers, who conduct the bulk of private-sector R&D in Australia;
  • The bad news is that the new changes retain an intensity scale for calculating the tax offsets of firms with a turnover of more than $20 million, which includes all of Australia’s large manufacturers;
  • In submissions and evidence to a Senate inquiry into the now superseded R&D bill, many manufacturers warned that introduction of an intensity scale would force them to move either their R&D or their manufacturing offshore;
  • Intensity measures are a fundamentally flawed means of assessing the value of R&D activities;
  • the government passed up an opportunity to introduce a premium rate of the Incentive for businesses that collaborate on R&D with universities and research agencies such as the CSIRO”.

Swanson Reed notes that there is some merit in what Mr Carr has outlined in his article in respect of the complexity of Intensity Scales. We do note however that the Government’s budget revised reform bill is a vast improvement over the bill announced in December 2019, given that:

  • The base level of tax benefit available to claimants of the Non-refundable offset is preserved, without them being subject to an intensity scale;
  • The intensity scale only becomes relevant to companies seeking to qualify for an additional level of benefit over and above what they already qualified for;

And whilst a collaboration premium would have been nice, given the large cost of government stimulus already provided by COVID measures, we concede that a line had to be drawn somewhere, and would happily accept this version of reforms over what was previously proposed.

We also note with concern that in recent months, Labor itself and indicated potential alternate radical reform to the R&D Tax Incentive, with Clare O’Neil stating in September:

  • “The R&D tax incentive needs big reform;
  • Our R&D program is quite unusual in that it is a broad-based tax incentive. As long as you meet the criteria you basically get the money. Some of the best innovators around the world use much more direct grants to fund R&D;
  •  In the long run that is what I’d like to see more of in the program”.

Swanson Reed notes that Labor did not oppose the latest reforms announced in October, and now call on both sides of politics to commit to a stable , broad-based R&D Tax Incentive.

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