Senate R&D tax inquiry delayed again

Denham Sadler
National Affairs Editor

The uncertainty for companies accessing the R&D tax incentive is set to continue with the Senate committee tasked with investigating the planned $1.8 billion cuts to the scheme delayed again.

The Senate Economic Legislation Committee is scrutinising the government’s legislative changes to the research and development tax incentive (RDTI), including the introduction of a $4 million cap for smaller companies and a new “intensity measure” to calculate the size of the offset for larger firms.

It was expected to report the conclusions of the inquiry this Friday, but this has been pushed back further due to changes in the Parliamentary sitting schedule.

The changes amount to a $1.8 billion cut to the scheme and have been unpopular across a range of sectors, with concerns they will lead many companies to either cut R&D or move it offshore.

Robot research R&D RDTI
R&D scheme: Senate inquiry reporting date has been set back again

There has been increased pressure on the government to back away from the legislation due to the impact of the COVID-19 pandemic. The government has been less willing to back the changes of late, with neither the Treasurer’s or industry minister Karen Andrew’s office going on the record in support of the legislation.

The committee, which has already rejected virtually the same legislation last year before it was re-introduced to Parliament in December, had originally been set to report on the bill by April, with the government planning to push it through Parliament before the end of the financial year.

But the inquiry was delayed by five months due to the ongoing COVID-19 pandemic and was set a new reporting date of this Friday. But due to the changes in the Parliamentary sitting schedule, this date has now been pushed back by another two weeks, with the committee now expected to table its report on the bill by 24 August.

It means a further wait for up to a third of the companies accessing the scheme looking to find out whether they will have to amend their 2019-20 financial year tax return and pay back some of the RDTI offset that was claimed.

Despite being unable to pass the legislation until next month at the earliest, the government still intends to impose the changes retrospectively to the last financial year.

Companies filing their returns now have to do so under the current RDTI rules, and later amend them if the rules change.

The committee has only held one public hearing as part of its inquiry, with a number of industry groups and stakeholders telling the Senators last month that the proposed changes would reduce the size of the offset for companies across a number of sectors and risk many looking to move R&D operations offshore.

Treasurer Josh Frydenberg said the government is “committed to backing R&D investment and the economic opportunities and jobs it generates”, without mentioning the planned cuts to the RDTI.

“The 2019-20 budget forecast the government’s total support for R&D in that year to be around $9.6 billion. This includes $7.6 billion in direct funding for R&D. The government will continue to support R&D activity as a means of improving the future competitiveness and productivity of the economy,” Mr Frydenberg told InnovationAus in a statement.

Now is not the time to be stripping away support for research and development, according to BDO Australia R&D tax partner Nicola Purser, who labelled the new intensity measure “needlessly complicated” and their retrospective nature as “very disappointing”.

“Now, more than ever, the government should be looking at providing Australian businesses with incentives, to help keep the economy afloat and withstand the profound adverse economic impact of the pandemic,” Ms Purser said.

“The vast majority of Australian companies that produce goods – manufacturing, agriculture or mining will be worse off under the proposed measures, even compared to the previous version of the flawed proposed changes that were unanimously rejected by the Senate Economics Committee earlier this year.

“It can only be assumed that the measures will disincentivise Australia’s miners, manufacturers and agribusinesses from accessing the program and therefore are not targeted at increasing R&D but are being introduced purely as a cost-saving measure.”

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