R&D tax set for Senate showdown

Denham Sadler
Senior Reporter

Government cuts to the research and development tax incentive (RDTI) are set for a Senate showdown next week and is expected to be referred back to the same committee that rejected the cuts last year.

With Parliament to resume next week after the summer break, a number of tech-related pieces of legislation are set to be debated, including Labor’s encryption amendments and a long-awaited expansion of the regulatory sandbox.

The Coalition first announced the major changes to the popular R&D tax incentive (RDTI) in the 2018 budget, with legislation unveiled and introduced to Parliament early last year.

Brendan O'Connor
Brendan O’Connor calls for more support for R&D Tax scheme

The changes included an increase in the expenditure threshold to $150 million, a $4 million cap for smaller companies, and the introduction of an “intensity threshold” for larger firms.

The legislation was referred to a Senate committee for inquiry, and the government-led committee eventually rejected the bill, raising concerns of its impact on small companies and the potential for the changes to drive R&D away from Australia.

Nearly nine months later the government reintroduced the legislation to Parliament with only a handful of minor tweaks. The start date was pushed back to the 2019-20 financial year and small changes were made to how the intensity measure is calculated.

The most significant parts of the cuts remain the same, with the Coalition now planning to shave $1.8 billion from the cost of the scheme.

The legislation was introduced to the lower house in December and is set to be debated in the Senate in the coming sitting weeks.

The Opposition has however already flagged that it has major concerns with the legislation.

A draft shadow cabinet submission on the legislation has been drafted, and Labor’s formal position will be decided once the shadow cabinet and caucus meets next week.

The legislation will likely be quickly referred back to the same Senate committee that rejected it last year.

The Opposition has a number of concerns with the bill as it stands, including with the lack of a collaboration premium, the potential for it to drive jobs and R&D offshore, and why only clinical trials had been given a carve out from the new cap.

“The government is yet to properly explain how the minor tweaks to the bill before Parliament have heeded the bipartisan concerns of the Senate Committee that the R&D measure ‘should be re-examined in order to ensure that Australian businesses are not unfairly disadvantaged’,” shadow industry minister Brendan O’Connor told InnovationAus late last year.

“At a time when investment in R&D is in decline compared to other countries, it is concerning that the Morrison government has reintroduced a controversial and retrospective bill amending the RDTI.”

The Coalition has defended the cuts, saying the RDTI isn’t functioning effectively at the moment.

“The incentive is not achieving the goal of increasing levels of business investment in R&D and reform is necessary,” Industry Minister Karen Andrews said.

“Importantly, the government wants to encourage businesses to back themselves – to promote even more investment in R&D. We have listened to businesses and are introducing reforms to simplify, target and improve the system,” she said.

“The final bill introduced into Parliament has also been refined to defer the start date so existing business decisions are not affected and to simplify the intensity test.”

Labor’s attempt to “repair” the highly controversial Assistance and Access Act will also be debated in the Senate next week. The changes to the encryption legislation, which gives authorities the power to compel tech companies to provide access to encrypted data, were introduced to the upper house at the end of last year.

The Opposition has said the amendments are needed for Australia to qualify for a data-sharing agreement with the US, but the government has said the legislation does not prevent such a deal being signed.

The Coalition is likely to reject making any changes to the contentious legislation until two major inquiries are concluded later this year.

The government has also committed to passing legislation expanding the scope of the regulatory sandbox as a “matter of priority” this sitting session. The Opposition has criticised the Coalition for continual delays in passing the changes, with only seven companies accessing the existing scheme since it was launched more than three years ago.

Parliament sits for the first time in 2020 from Tuesday next week.

Do you know more? Contact James Riley via Email.

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