Tech exodus looms due to RDTI changes

Denham Sadler
National Affairs Editor

The government’s controversial changes to the research and development tax incentive would cut the benefit nearly in half for a number of local tech companies, leading some to consider moving offshore, a senate committee has been told.

Submissions to the Senate inquiry into the legislation that makes changes to the RDTI program released on Thursday reiterate concerns that the changes would make Australia an unappealing place to conduct R&D operations.

The reforms, first flagged by the Coalition in the 2018 budget, were reintroduced to Parliament late last year, after being rejected by a Senate committee earlier in the year.

Bye-bye wide brown land: Tech companies look offshore

The legislation has some minor changes, but the significant reforms remain: 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 small tweaks included a push back of the start date to the 2019-20 financial year and a minor alteration as to how the intensity measure is calculated.

Numerous tech companies warned the first time around that the changes could force them to relocate to another country with more favourable tax offsets, something flagged by the first senate committee’s final report.

Now a series of firms have told a senate committee investigating the new legislation that it may still lead them to move offshore.

A number of tech companies have made submissions to the inquiry based on the same template, outlining disappointment that the new legislation is basically the same as the original bill, how it will reduce their research and development activities and potentially lead to them leaving Australia.

A key concern among the submitters is the new intensity measure, which accounting software giant MYOB said would provide “inadequate incentive and support for Australian companies engaged in R&D”.

MYOB is faced with an almost 50 per cent reduction in its R&D tax benefit if the changes are implemented, the company said.

“This bill seeks to reduce the cost of the programs to the detriment of companies actively trying to innovate in Australia,” MYOB head of group finance Grant Lingwood-Smith said in the submission.

“We estimate a 47 per cent reduction in the R&D tax benefit for MYOB which will impact our ability to undertake R&D projects in Australia. This reduction is a direct consequence of the proposed intensity measure calculation.”

The intensity measure has not been changed to meet the recommendations of the senate committee last year, and MYOB would be hit by these changes as it will likely not exceed the 4 per cent intensity premium due to its cost base.

This would impact the company’s R&D operations in Australia, with MYOB flagging that it could relocate activities to New Zealand.

“MYOB would have to consider other options for best financial result. This would mean potentially moving R&D spend to NZ for the development of MYOB’s new online business management platform for Australia’s and New Zealand’s small businesses and accounting practices,” Mr Lingwood-Smith said.

“MYOB already employs a sizeable software development team in Auckland, currently supported by innovation grants from the NZ government. Notwithstanding NZ’s proposed changes to its R&D credit regime, which will impact MYOB from March 2020, it is still more favourable than Australia’s proposed R&D bill.

“In the current economic climate, business needs government leadership and support, especially where it will help drive commercial innovation. The government should increase its support for R&D via the R&D tax incentive.”

Data insight firm NostraData also said it was “extremely concerned” about the intensity measure, and that it could cut its tax offset by about 47 per cent.

“The intensity measure fails to take into account recommendations by the senate committee to incorporate a methodology capable of offsetting the adverse impact to different industries that may be disadvantaged as compared to low cost input sectors,” the NostraData submission said.

“For businesses like ours, it is unlikely we could exceed the 4 per cent R&D intensity premium by nature of our cost base and thus will only receive a 4.5 per cent benefit.

“At a 4.5 per cent benefit, we will have a limited ability to invest in R&D and employ talented staff in Australia. We will need to reconsider the location and quantum of R&D employment and spend in Australia.”

Clean Teq, a Victorian company developing an ion exchange technology for use in electric vehicle battery materials and water purification, said the introduction of the intensity measure would reduce its offset by 41 per cent.

Do you know more? Contact James Riley via Email.

  1. Philip Dodds 4 years ago

    Well said Ted. Keep the ATO out of all programs aimed at helping the economy.

  2. Any proposal to tighten rules will prove ill-timed and ill-considered. The DNA of the Federal bureaucracy is to add complexity and systematically reduce and claw back any program of subsidy or incentive. Having
    the ATO involved in the management this policy is inherently flawed. Time and time again we have seen the ‘deep regulatory State’ frustrate the activities of those who create value for the economy.

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