The federal government’s “enhanced” reforms to the research and development tax incentive passed Parliament just days after being announced, ending two and a half years of uncertainty for those accessing the popular scheme.
The new reforms to the research and development tax incentive (RDTI) were revealed in last week’s federal budget, representing a significant backdown from the government’s previous plan to cut $1.8 billion from the scheme with a number of changes.
The changes were passed by the Senate unamended on Friday as part of an omnibus bill of a number of the Coalition’s budget policies.
Under the new reforms, which will come into effect from July next year, companies with annual turnover under $20 million will receive a refundable tax offset for R&D set at 18.5 percentage points above the claimant’s company tax rate. Previous plans to introduce a $4 million cap on the offset have been scrapped.
For larger companies, the R&D offset will be calculated using a simplified intensity measure based on the level of R&D conducted by a company divided by their total expenses. If this is between 0 and 2 per cent the non-refundable offset will be set at 8.5 percentage points above the company tax rate. If the measure is higher, then it will be set at 16.5 percentage points above the company tax rate.
The legislation also raises the expenditure threshold from $100 million to $150 million and includes a number of administrative changes to the scheme.
The passing of the legislation brings to an end two and a half years of uncertainty for companies accessing the RDTI, after the government announced in the 2018 budget that it was looking to roll out significant reforms that would have amounted to a $1.8 billion cut.
Because they were included in the wide omnibus bill, the RDTI reforms were hardly mentioned in the Parliamentary debate but appeared to have wide bipartisan support.
Crossbench senator Rex Patrick welcomed the backdown but questioned whether the government will stick to it in the future.
“The history of cutting back the R&D tax incentives is interesting; it is the classic flip-flop strategy – originally I said no then I said yes then I said no and I have stuck to it,” Senator Patrick said.
“It has a bit more gravitas this time because it was no by a government-chaired committee then yes with this latest government bill on R&D and then no, as just advised by the Treasurer. The question is: will they stick to it?”
Greens Senator Nick McKim also offered support of the changes but said they should have gone through the committee process to ensure there are no unintended consequences.
“These measures provide slightly larger tax benefits for companies that undertake research and development. It would have been far more prudent for the government to send this bill to an inquiry as to give the Senate time to consider these changes and to make sure there are no unintended consequences,” Senator McKim said.
“But of course the collusion of the major parties in this place to jam this bill through today, with almost no opportunity for scrutiny, means that we will not be able to do that. But we do support these measures in this bill that I’ve mentioned.”
The government’s previous attempt at reforming the RDTI was widely criticised by industry groups, companies from a range of sectors and the Opposition, with concerns they would lead to companies moving R&D activities overseas or relocating offshore entirely.
The changes were initially knocked back by a government-led senate committee before being reintroduced to Parliament with some slight changes late last year. The legislation stalled in Parliament though and the onset of the COVID-19 pandemic heaped further pressure on the government to abandon the plans, which they eventually did last week.
This decision has been welcomed by industry groups, with AusBiotech chief Lorraine Chiroiu saying it represents an “important and positive shift” and UTS Innovation Council chair Professor Roy Green saying the legislation addresses most of the concerns surrounding the RDTI reforms.
Labor also supported the legislation’s passage through Parliament, but criticised the government’s attempt to position it as a $2 billion investment in the RDTI, when this is based on its previous attempts to cut the scheme being in place. The new reforms will see an extra $240 million going towards the RDTI over the forward estimates.
“THe government’s claim that this is new spending is a brazen misrepresentation of the truth. Their grand plan for research and development, so essential in the depths of this recession, is to simply restore the money that in their heart of hearts they want to cut,” shadow industry minister Brendan O’Connor said last week.