Govt offers clarity with first R&D Tax Incentive determination


Denham Sadler
National Affairs Editor

The first binding determination for the research and development tax incentive has been unveiled, with hopes further binding guidance related to tech and software claims will lead to greater certainty for companies accessing the scheme.

The Industry department last week released a draft determination clarifying how clinical trials are dealt with under the research and development tax incentive (RDTI).

The department was given the power to issue these determinations as part of sweeping reforms to the RDTI which came into effect this financial year.

Manufacturing
The RDTI scheme is aiming to deliver greater clarity to industry

While this first ruling relates to a fairly non-controversial element of the scheme and one already well understood, there are hopes that determinations will later be issued to provide certainty around how software claims and other more troublesome areas will be handled by the regulators.

The Industry department is now consulting on the draft determination, which states that phase 0 to 3 clinical trials for unapproved therapeutic goods are eligible for the RDTI, as long as they don’t involve a generic product.

This covers exploratory studies of new medicines through to full-scale clinical trials with patients suffering from the condition the new medicine is intended to treat.

Phase 4 clinical trials, which occur after the good has been approved for the treatment of a particular disease, are not covered by the determination.

“This determination will facilitate registration with the RDTI program by providing increased certainty on eligibility for the program to those conducting clinical trials in Australia,” the determination said.

“The Board recognises that in Australia, clinical trials are generally conducted within strict regulatory frameworks. This includes complying with any relevant approvals, requirements and standards when conducting these trials. This means many clinical trials meet the definition of ‘core R&D activities’ in the Act if they are conducted in accordance with this regulatory framework.”

It’s an uncontroversial determination and is in line with how clinical trials eligibility has been determined for several years.

But many in the industry and RDTI space have welcomed the first determination as a sign of stability to come, and are hoping the government will release similar ones for more controversial elements of the scheme, such as software claims.

Michael Johnson Associates chairman and RDTI expert Kris Gale said selecting clinical trials as the test case for these determinations made it easy for the government.

“It’s very benign and the epitome of low hanging fruit. I would argue the eligibility of this type of work has been clearly understood since the RDTI began in 1985,” Mr Gale told InnovationAus.

“One would think that the effort would be better spent in areas of real need such as software development but we’re giving the government a free pass on this one, allowing them a ‘soft start’ in this new endeavor.”

The new determination is a positive step for the scheme, with hopes for more clarity in the future, Swanson Reed principal Damian Smyth said.

“This is a positive development, and it may act in attracting companies to Australia to conduct trials if they have greater certainty that the activities are eligible under the RDTI,” Mr Smyth told InnovationAus.

“It will be interesting to see potential application of these determinations to other industries in the future, like software, mining, engineering and manufacturing, and the guidance these might provide.”

The RDTI is seemingly moving into a period of stability following a tumultuous series of years.

In 2020 the government scrapped its plan to cut $2.4 billion from the scheme through a series of changes, instead introducing a number of more minor adjustments which came into force this financial year.

Earlier this year the tax office confirmed that payments made under the JobKeeper program will not be eligible for the RDTI, with many companies now likely to have to amend their last two tax returns.

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