The Australian Industry Group has urged Senators to reject further changes to the Research and Development (R&D) Tax Incentive, which are due for a vote in the Senate this week, writing to and speaking with Senators to ensure they understand how industry and the economy will be harmed.
The Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, if passed, would reduce the value of the R&D Tax Incentive with adverse impacts for innovation in Australia.
Business innovation is central to longer-term advances in our economic and broader social wellbeing. It is also key to the restructuring task currently needed to build an economic foundation that is stronger, more resilient and more balanced across industries and regions.
In Ai Group’s submission to the Taxation Review, we argued that the tax system is well suited to provide a stable and predictable means of correcting for the systematic under-investment in spillover-generating, private sector R&D. But our members note that frequent changes to the R&D Tax Incentive undermine confidence in, and the effectiveness of the incentive.
Unfortunately, the measures proposed in the Bill currently before the Senate are at odds with the objectives of building a stronger economy. The provisions in the Bill would reduce the R&D Tax Incentive by 1.5 percentage points, effective from 1 July 2014. This Bill was originally intended to align with the previously announced across-the-board cut to the company tax rate. If the company tax rate had been cut, the changes to the rate of incentive would have preserved the nominal value of the tax incentive.
However, now that the tax cut is not occurring other than for businesses with annual turnovers of less than $2 million, the Bill before the Senate, if legislated, would erode the value of the tax incentive.
For companies with revenues of $2 million and $20 million, the incentive will fall in value by 10%, and for those companies with revenues over $20 million, the incentives will decline by 15% in value. All companies in a loss position will see a reduction in the value of the incentive. The latter is particularly disadvantageous for companies attempting to innovate in response to difficult trading conditions. These proposed reductions in the value of the incentive would see businesses spend less on their own R&D. In addition they will make less of a contribution to Australia’s research infrastructure and research networks.
These outcomes are clearly undesirable. Further, they stand in stark contrast with other current policy directions which are focused on lifting commercially related R&D. They also follow recent changes to cap the amount of R&D that can be claimed to $100 million. Ai Group will continue to pursue this issue, and other tax reform issues, with the major parties and crossbenchers to ensure that industry is given solid and stable settings that enhance the competitiveness of Australian businesses.
Has your business used the R&D Tax incentive? How will the proposed changes affect your future plans to invest in innovation? Share your experiences and thoughts below.
Ai Group is also keen to hear from members on broader business tax issues as we participate in the Federal Government’s tax review. Please leave your thoughts below or call Pip Freebairn on (03) 9867 0261.
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