AusBiotech tells inquiry why 1.5% cut is not benign for biotech

AusBiotech said in its submission to the Inquiry into the ‘Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014’ that the seemingly small but not benign change, announced in the May 2014 Federal Budget, will permanently impact companies in tax loss.

While this cut and its flow-on impact may appear small or inconsequential, it will specifically disadvantage small pre-revenue and start-up companies, which runs completely counter to government rhetoric and indeed the policy intention of the R&D Tax Incentive.

AusBiotech also contends in its submission that the constant threats and tweaks to the R&D Tax Incentive are unsettling for biotechnology developers and undermine business confidence at a time Australia can least afford to falter.

While the 1.5% reduction to R&D Tax Incentive is expected to be neutralised by the 1.5% reduction to the corporate tax rate (effective 1 July 2015), this expectation fails to take account of the impact on the many pre-revenue small companies that are in tax loss and therefore don’t pay corporate tax.

This change appears to be an unintended consequence that will discriminate against small start-up biotechnology and other R&D-based companies. AusBiotech, therefore, argues for an adjustment for pre-revenue companies, which equals the benefits enjoyed by companies obtaining any future corporate tax reduction. This adjustment would be consistent with the policy intent and support of start-up innovation in Australia.

In public policy terms, the 2011 introduction of the R&D Tax Incentive was a momentous and pivotal inflection point for Australian innovation. The incentive is actively attracting companies from around the world to bring their R&D to Australia.

The R&D Tax Incentive was very well received by the industry and its intact preservation remains the number one public policy issue within the industry. Since the R&D Tax Incentive’s implementation, the annual Biotech Industry Position Survey (2013 and 2014) has ranked the incentive amongst the industry’s most pressing public policy issues, with survey respondents repeatedly expressing their support of the program and concern that it might be reduced or withdrawn.

This group of early-stage companies, that typically has prolonged periods of tax loss and no revenues, was particularly disadvantaged by the May Budget, said AusBiotech. The loss of commercialisation support provided by the Innovation Investment Fund and Commercialisation Australia makes the R&D Tax Incentive cut even more harmful.

The full submission can be found here.