Amidst the talk of Australia’s pending ideas boom, and the recently released National Innovation and Science Agenda, it was inevitable that the R&D tax regime would get yet another review. As Australia’s primary and ongoing innovation driver, the R&D tax incentive regime is once again being reviewed to identify opportunities to improve the effectiveness and integrity of the regime.

The scheme’s transformation from the R&D Tax Concession to the Incentive in 2011/2012 was the first stage in targeting it to organisations that most needed the assistance to innovate their products, technologies and services.  The $100M R&D Expenditure cap introduced in 2014/2015 for larger claimants assisted in weighting the incentive in favour of small to medium enterprises.  The current review will look to focus the incentive towards funding additionality in organisation’s R&D.

The review is seeking input on its Issues Paper released on 10 February 2016 with input due by 29 February 2016. 

The review considers the following key areas:

· Rates and thresholds: the tax offset rates are intended to encourage R&D investment by lowering the price of R&D with a focus on helping smaller companies. The review is considering restrictions to the types of eligible R&D expenditure

· Definition of eligible R&D: the definition is intended to filter ‘genuine’ R&D projects that are likely to deliver benefits to the broader Australian economy

· Timing of administration: because companies register their R&D and claim the benefit after the decision to undertake the R&D project, the registration process may have a smaller impact on R&D project investment decisions and additionality than would otherwise be the case.  Pre-registration is contemplated as a method of increasing additionality.

 

The reviews focus areas are a consequence of:

   - The increasing costs of the regime,

   - Feedback from a recent AusIndustry survey issued to R&D tax claimants, and

   - Feedback from R&D tax advisors.

Given the Government’s fiscal constraints, the increasing cost of the regime is a key driver of the review. With the consultation process, the Government is effectively seeking a more cost-effective process to encourage a culture of innovation that delivers benefits to the Australian economy in terms of revenue, jobs and long-term stability through a diversified economy.

The timeframe for responses to the Issues Paper is short. However, it is imperative that claimants contribute their thoughts and experiences with the R&D tax scheme to enable the Government to make changes based on a complete view of the current R&D tax incentive regime.

KPMG will provide specific feedback to the review and will welcome suggestions from claimants if they wish to have input into the review without directly making submissions.

The review expects to report to Government in April 2016, which implies a new incentive model may be presented at the May Federal Budget.

Reference

Review and Issues Paper – Department of Industry, Innovation and Science website – http://www.business.gov.au

Contact
Shaira Ismail, R&D Tax Senior Manager, KPMG 

P: +61 2 9335 7725 

E: shairaismail@kpmg.com.au