New R&D tax incentives ‘under a cloud’


The recent blocking of the R&D tax incentive Bill in the Senate will give the Federal Government a chance to get core concerns resolved, says Australian Industry Group CEO Heather Ridout.

“Australian industry also needs urgent clarification of the tax arrangements for industrial R&D undertaken during the coming financial year," Ms Ridout said.

The Senate will not reconsider the proposed new R&D tax incentive until the end of August at the earliest.  

While the existing arrangements remain in force, business R&D will be under a cloud until the Government clarifies that the existing arrangements will remain in place for the entire 2010-11 financial year, says Ms Ridout.

"While business is relieved that the Government’s plans are not yet law, this is far from the end of the matter, she says. “The clarification that existing arrangements will remain in place for the full coming financial year is essential if businesses are to proceed with their immediate R&D plans with certainty over the tax arrangements.  This is particularly urgent as it's the very time major investment decisions are being finalised.”

Ms Ridout says the Australian Industry Group has worked hard on behalf of Australian businesses to ensure the “flawed” approach to the tax incentive proposed by the Government was not enacted.   

“The actions of the Opposition and Senator Fielding in preventing the passage of the Government’s proposed changes to date have been welcome, says Ms Ridout.  

“These changes posed a very significant threat to business R&D in Australia and would have resulted in a sharp fall in the level of R&D undertaken by business.  

“This would have stifled Australia’s long-term productivity growth.”

Ms Ridout said while the Government's approach contains a number of “welcome” proposals, they do not justify or outweigh the “draconian and ill-considered restrictions” on eligibility put forward as part of its proposals.  

“These restrictions would have slashed support for many mainstream experimental development activities undertaken by business, says Ms Ridout.

The time provided by the delay in the Bill's passage should be used to develop a new and stable approach to the business R&D tax incentive in consultation with business and put in place in time to operate effectively from July 1, next year.  

It should have the following key elements:

  • The tax incentive should shift to a tax credit with an increase in the level and availability of the refundable tax credit for smaller businesses.
  • While the current rules governing eligibility for the tax incentive should form the foundation of eligibility under the new arrangements, the Board of Taxation should be asked to examine alternative measures that closely target the Government’s concerns about misuse of the tax incentive and
  • Eligibility rules should be relaxed for R&D relating to software.

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