July 7th, 2020
In December 2019, the government re-introduced a bill to reform the R&D Tax Incentive.
This bill was a slightly modified version of a previous reform bill (Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018), which did not pass through the Senate at that time. A Senate Economics Legislation Committee recommended in February 2019 that the initial bill should be deferred from consideration until further analysis of the bill’s impact is undertaken, particularly with respect to concerns around the proposed intensity threshold and refundable offset cap.
The R&D Tax Reform bill has been uniformly criticised by companies, industry groups and R&D tax professionals, with concerns particularly directed at the “Intensity Threshold” proposal, which would punish companies with large cost bases, such as local manufacturers.
The Senate Economics Legislation committee public hearing on the revised bill was conducted on Monday 29 June.
Media reports since this hearing have reported further criticism of the bill from political parties whose support may be required to secure passage of the reform through the Senate:
- Centre Alliance Senator Rex Patrick was quoted in InnovationAus stating the following since the hearing:
- Proposed changes to the R&D Tax Incentive are unsalvageable, and more is needed to be done instead to ensure that IP developed in Australia remains here;
- There is a “huge opportunity” for Australia to take advantage of the IP developed locally and ensure it remains onshore. This should be the focus of the government, rather than its planned $1.8 billion cut to the R&D Tax Incentive;
- he would recommend that his party reject the bill entirely;
- he did not think the bill in its current form will pass the Senate, “because it actually sends things in the wrong direction. We have declining R&D, and none of the companies are in support of it. It is flawed policy”;
- Labor Senator and Industry Affairs stalwart Kim Carr has posted several criticisms of the proposal on Twitter since the hearing:
- Medicines Australia tells Senate Committee that the R&D changes with their retrospective nature will make it impossible to plan for business;
- ResMed has told the Senate hearing into the R&D Tax Incentive that the proposed changes will create a disincentive for future investments in Australia;
- Manufacturing Australia tells that every member of Manufacturing Australia (12 firms employing 50,000 Australians) will be worse off under the Liberals changes to the R&D Tax Incentive.
With the Labor party posed to vote against the proposed R&D Tax Reform bill, its passage seems likely to depend on the view of the cross bench senators.
Swanson Reed’s position is that:
- The current bill to reform the R&D Tax Incentive should be withdrawn altogether due to the seemingly unanimous condemnation of it by all relevant stakeholders;
- If the bill is passed, that an amendment be made to defer the start date of the bill to be FY21 or FY22, to allow companies sufficient time to attain and understand relevant guidance material on the reform’s implementation.
We call on both sides of government to commit to a stable R&D Tax Incentive, and are of the view that the programme would be most effective in achieving its policy objectives if not subject to further proposed changes.