R&D Tax Incentive cuts proposed

The Turnbull government last week introduced the Budget Savings (Omnibus) Bill 2016 into Parliament — a budget repair Bill containing 24 measures that will save a projected total of $6.1 billion over the forward estimate period. But biotechnology organisation AusBiotech is not happy with some of the savings measures included in the Bill — specifically, the proposed cuts to the Research & Development (R&D) Tax Incentive.

Schedule 22 to the Bill amends the Income Tax Assessment Act 1997 to reduce the rates of the tax offset available under the R&D Tax Incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset will be reduced from 45% to 43.5% and the lower (non-refundable) rates of the tax offset will be reduced from 40% to 38.5%.

AusBiotech CEO Glenn Cross said the Omnibus Savings Bill risks Australia’s competitive advantage in the life sciences — a competitive advantage which he said has “responded recently with growth, in large part due the effect of the R&D Tax Incentive”.

AusBiotech noted that the proposal to reduce benefits to R&D-engaged companies was originally linked to a promised corporate tax reduction of the same magnitude, thereby effectively neutralising the reduction. However, the corporate tax decrease was not implemented.

Companies with a turnover of greater than $2 million that access the R&D Tax Incentive are thus set to lose 10–15% of the current net after-tax benefit available via the incentive, as they do not benefit from lower company tax rates. Meanwhile, companies who are in a tax-loss position, who would have previously received 45% of their R&D spend as a refundable offset, will now only receive 43.5%.

“The chapter states that no concerns were raised during consultation,” said Cross, referring to Schedule 22 of the Bill. “AusBiotech, as the key industry representative body for a significant research and development sector, which has been identified by government as deserving national focus with the medtech and pharmaceutical growth centre, was not consulted and has concerns.

AusBiotech has also criticised the stance of the Opposition, which has long defended the need to retain the existing R&D tax rebates. Cross said this position changed in the last election campaign, with the Opposition contradicting “its clear statement of support regarding innovation and entrepreneurs”.

“AusBiotech calls for the government to release the proposed changes that will result from the recent review of the R&D Tax Incentive, consult with AusBiotech and consider how these will mitigate or exacerbate the reduction in benefit that is currently proposed in Chapter 22 of the Omnibus Savings Bill,” he said.

“It would be preferable for industry to see all the proposed changes and have an opportunity to engage with the government before reverting to the original Abbott/Hockey measure.”