Government quells concerns about R&D Tax Incentive

Industry Minister Greg Combet has moved to quell concerns that the fledgling R&D Tax Incentive could be trimmed in order to help fund a cut to the corporate tax rate, as raised by the government’s Business Tax Working Group discussion paper.

Speaking to journalists in Canberra, he acknowledged the importance of the tax incentive, particularly to encouraging innovation in the country, according to AAP.

The R&D Tax Incentive kicked off in July of this year, and offers a 45 per cent refundable tax offset to eligible companies with turnover of less than $20 million, and non-refundable 40 per cent tax offset to companies with a turnover of more than $20 million.

The Business Tax Working Group released its discussion paper on Monday, exploring ways to streamline Australia’s taxation system and how to fund a reduction of the corporate tax from the existing 30 per cent to a lower rate.

One suggestion is dropping the R&D Tax Incentive non-refundable rebate for companies over $20m turnover from 40 per cent to 37.5 per cent, which would save $500 million over four years.

Another proposed alternative is to apply the Tax Incentive only to companies with a turnover of less than $30 billion, saving $150 million per year. A third alternative is to cap the eligible R&D expenditure at $100 million per annum.

The suggested changes alarmed many in the biotechnology industry, with the Association of Australian Medical Research Institutes (AAMRI) stating that health and medical research should be shielded from any cuts in the R&D Tax Incentive.

“The social benefit delivered through existing R&D tax concessions far outstrips the dollars as they appear on an accountant’s spreadsheet,” said AAMRI President, Professor Julie Campbell.

“We pride ourselves on being ‘the clever country’ and we should be doing everything in our power to protect Australia’s proud history of health and medical innovation.

“We must encourage – not discourage - private sector investment in research that could help us find solutions to major health conditions that our health system is struggling to manage.

“Cuts to R&D tax concessions have the potential to drive investment in medical research offshore, with companies choosing to invest in countries that offer more beneficial environments for commercialisation of their research.”

The Working Group is still seeking feedback on the draft proposals, with none of the suggested cuts to the R&D Tax Incentive constituting a recommendation at this stage. A final report from the Working Group is expected at the end of this year.