R&D Tax Incentive Review

October 10th, 2016

As part of the National Innovation and Science Agenda launched in December 2015, the government instigated a review of the R&D Tax Incentive programme, chaired by Mr Bill Ferris AC (Innovation Australia), DR Alan Finkel AO (Chief Scientist) and Mr John Fraser (Secretary to the Treasury).

The review sought to identify opportunities to improve the effectiveness and integrity of the programme and sought submissions from a variety of stakeholders (download the Swanson Reed submission here).

The results of the review have now been published and include a range of key recommendations. These recommendations are not yet law or changes to the R&D Tax Incentive, however the government will consider these recommendations and whether to proceed with their adoption.

Key recommendations:

  1. New guidance and clarity regarding eligibility of activities and expenses – Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.
  2. Additional 20% non-refundable collaboration premium – Introduce a collaboration premium of up to 20 percent for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly-funded research organisations. The premium would also apply to the cost of employing new PhD or equivalent graduates in their first three years of employment.
  3. $2 million cap for refundable R&D tax offsets – Introduce a cap in the order of $2 million on the annual cash refund available under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income.
  4. Expenditure intensity threshold for non-refundable offset – Introduce an intensity threshold in the order of 1 to 2 percent of total business expenditure for recipients of the non-refundable component of the R&D Tax Incentive. It would be proposed that only R&D expenditure in excess of the threshold attract a tax benefit.
  5. Increased eligible expenditure cap to $200 million – If an R&D intensity threshold is introduced, increase the expenditure cap to $200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia.
  6. Administration of the R&D Tax Incentive – Investigate changes to the administration of the R&D Tax Incentive for potential improvements E.g. adopting a single application process; developing a single programme database; reviewing the two-agency delivery model; and streamlining compliance review processes and resourcing.

The review panel made a series of recommendations for potential changes to the programme and the consultation process for submissions on these recommendations closed in October 2016.

The recommendations are not yet law or changes to the R&D Tax Incentive. The government are now considering the recommendations in conjunction with the submissions.

The government’s response to the review is schedule to be released in 2017.

Download the Swanson Reed submission here.