R&D Tax Credit introduced to parliament

Almost precisely 12 months after it was first announced, the much-debated R&D Tax Credit legislation was introduced into parliament by Innovation Minister, Senator Kim Carr, today, but there's still controversy over the definition of "research and development."

The legislation replaces the older R&D Tax Concession, which only provided a benefit to business that were already turning a profit, thus had a sizable tax debt to reduce.

The R&D Tax Credit will deliver a cash return on R&D spending even for early-stage companies that are yet to turn a profit.

For example, a company in tax loss turning over $10 million and spending $1 million on eligible R&D activities will now receive a refund of $450,000 rather than adding $375,000 to its tax loss.

The legislation has already been through two rounds of revisions after industry feedback, and while the present legislation is endorsed by the biotechnology industry and AusBiotech, it's not supported by all industry groups.

According to BDO Research & Development Partner, Tracey Murray, the new bill "punishes success and rewards failure."

The contention is over what activities are considered "research and development."

In the current bill, R&D includes "experimental activities" such as those "whose outcome cannot be known or determined in advance", and which can only be known through scientific experimentation.

It rules out research such as prospecting for minerals, market research, making incremental or stylistic changes to products, administration or filing for patents, compliance or the development of software used for administration by the company.

As such, the bill benefits early-stage biotechnology companies involved in speculative and risky research, but it doesn't offer much for established companies, hence it's resistance from industry bodies such as the Australian Industry Group.

The legislation will now be debated in parliament, but needs to be passed by both houses before July 1 if it's to take effect in the new financial year.