Senate committee extension on R&D Tax review


Denham Sadler
National Affairs Editor

The senate committee tasked with scrutinising the federal government’s controversial changes to the research and development tax incentive has been given a five-month extension amid the ongoing COVID-19 pandemic.

The Senate Economics Legislation Committee was to hand down its report on the legislation – which amounts to a $1.8 billion cut to the scheme – by the end of April. But after cancelling upcoming public hearings, the committee has a new reporting deadline in August, the same month when Parliament is now slated to next return.

The submission window for the inquiry has already closed but it is unclear whether there will be more time provided, given the reporting extension.

Nearly 100 submissions to the inquiry have been made public, with virtually every one highly critical of the reforms to the R&D tax incentive (RDTI) scheme.

Extension: The Senate committee looking at the R&D changes
Extension: The Senate committee looking at the R&D changes

The legislation implements the changes first flagged by the Coalition in the 2018 budget. The initial legislation was knocked back by the same senate committee a year ago, with the government reintroducing the changes late last year.

Accounting giant BDO Australia slammed the changes in its submission to the inquiry, saying they will reduce the size of incentives while increasing the regulatory and compliance burden and discriminate against important industries.

“These reforms will lessen Australia’s attractiveness and competitiveness as a country in which to undertake R&D activities at a time where other countries are doing the opposite,” the BDO Australia submission said.

“Obfuscating the program by complicating the legislation, as well as reducing the quantum of the incentive available, will discourage companies from investing in Australia.”

The group argued that the reforms do not align with the intent of the RDTI scheme, which is to “encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities”.

The introduction of the “intensity measure” to calculate the size of the return for larger firms would “discriminate” against certain industries, the submission argued, including those that are high-volume, low-margin – including agribusiness, resources and manufacturing.

The Association of Independent Accounting Practices said there had been a loss of confidence in the RDTI scheme from both government and industry.

The subsequent increase in compliance checks and cash clawbacks has disincentivised companies from accessing the incentives, it said.

“The vast majority of claimants, as recognised by Innovation and Science Australia, have been doing the right thing, and should not be subjected to unreasonable compliance requirements, let alone have their level of incentive slashed through imposition of an arbitrary eligibility criteria which discriminates against certain businesses and industries irrespective of the facts relating to their R&D programme,” BDO Australia’s submission said.

“There appears to be a shift in focus from incentivising R&D to the ATO and ISA cracking down on legitimate claimants and making the programme unattractive, particularly for large companies which conduct the overwhelming amount of business R&D in Australia.”

In the submission, BDO Australia claimed that ISA had been “misleading Australian businesses on this fundamental tenet of the RDTI”, as seen through the Moreton Resources Federal Court ruling.

This ruling found that the ordinary meaning of the terms including the RDTI legislation were “clear and ambiguous” on what is regarded as “core R&D activities”.

“Pressing ahead with the plan to significantly erode the benefit of the R&D tax incentive to large businesses with a system that introduces even more uncertainty to that induced by ISA through its errant legislation interpretation is considered an entirely inappropriate government response,” it said.

The concerns in the BDO Australia submission echo those contained in several other submissions to the inquiry, most of which call on the government to completely scrap the planned reforms.

The reforms include an increase of the expenditure threshold to $150 million, a $4 million cap for smaller companies and the introduction of an intensity measure to calculate the tax offset for larger firms.

The new legislation states the changes will apply to the 2019-20 financial year, but it’s unclear whether the government will still attempt to make them retrospective now that the bill won’t be passed in this financial year.

Do you know more? Contact James Riley via Email.

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