Denham Sadler
April 26, 2019

Labor plans R&D startup exemption

Election 2019

Labor plans R&D startup exemption

Ed Husic: Will investigate R&D tax scheme carve-outs for the startup tech sector

Labor will move to further exempt startups from planned cuts to the research and development tax incentive if it wins the upcoming federal election.

In the first concrete confirmation that the Opposition will not go ahead with all of the government’s planned amendments to the research and development tax incentive (RDTI), both shadow industry minister Kim Carr and shadow digital economy minister Ed Husic have confirmed that Labor would look to protect early-stage tech companies.

The Opposition will also launch a six-month review looking at how to raise national R&D spending if it wins the federal election on May 18.

The federal government last year revealed plans to cut $2.4 billion from the RDTI scheme through a range of changes to the popular support program. These include a $4 million cap on annual cash refunds for companies with annual turnover of less than $20 million, and an “intensity threshold” to determine the refund for larger companies.

But these changes were put on hold in Parliament earlier this year after a government-led Senate committee recommended a number of further amendments. The legislation has now been left in Parliament during the election campaign, and the government is yet to officially confirm whether it will go ahead with it if it is re-elected.

A further $1.35 billion was cut from the RDTI over the forward estimates in this month’s federal budget.

The planned changes and ongoing uncertainty has been a subject of significant concern for the Australian tech and startup sector, with the RDTI being far and away the most popular government support scheme.

Speaking to the Australian Financial Review last week, Senator Carr confirmed that Labor will look to exempt startups from the planned changes to the RDTI.

“We’ve got to ensure that there is the maintenance of the integrity of the program, but we also want to make sure that people aren’t treated unjustly,” Senator Carr told the AFR.

"In particular that means seeing if agents have been deployed improperly or that department officials aren’t overstepping the mark in the way in which they’ve implemented the government’s savings policies," he said.

“You can only do that with the resources of government, but my intention is that we can find mechanisms to exempt the smaller companies from these reductions.”

Speaking to InnovationAus.com this week, Mr Husic confirmed that the Opposition will not be targeting tech firms with the RDTI changes if it wins the election.

“Labor absolutely and fundamentally recognises the powerful place occupied by the RDTI in the minds of the Australian startup community, and we do not want to make changes that affect the startup community’s ability to access the incentive,” Mr Husic said.

“It’s been diabolical the way the Coalition has messed around with the R&D support for startups, and Labor has stood firm against a lot of these reforms,” he said.

“I’m absolutely adamant that the Australian startup community should not be affected negatively by reforms to this incentive, which they have consistently said to me is the most important form of government support for their work.”

StartupAus chief executive Alex McCauley said it is “really encouraging” that Labor has put the R&D tax incentive on the agenda.

“Research and development is going to be the pillar on which Australia’s future prosperity rests,” Mr McCauley told InnovationAus.com.

“The R&D tax incentive is the government’s biggest piece of support in this area – it would be madness to go to an election without either side talking about it, particularly given it’s not in great shape right now.”

“Kim Carr’s promise that startups will get some relief if Labor wins government is testament to the fact that those conversations have filtered all the way through the system. This is a really positive development, and will be music to the ears of lots of very concerned founders and investors who have felt the R&D rug getting pulled out from under them.

“We’d love to see the LNP match Labor’s commitment to protect vulnerable companies from these retrospective clawbacks.”

Labor has also committed to devoting 3 per cent of GDP to research and development by the end of the next decade, and will launch a six-month review, led by former Australian government chief scientist Professor Ian Chubb, if it takes government.

While the government is yet to confirm its plans for the RDTI going forward, departmental officials recently told senate estimates that the Coalition had given “no indication” it will be backing away from the changes.

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