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Australia Publishes Findings Of R And D Tax Credit Review

by Mary Swire,, Hong Kong

04 October 2016

The Australian Government has published the results of a review into the Research and Development (R&D) Tax Incentive.

The review was commissioned in December 2015 as part of the Government's National Innovation and Science Agenda (NISA). The aim was to identify how the effectiveness and integrity of the R&D Tax Incentive could be improved.

The R&D Tax Incentive is comprised of: a 45 percent refundable tax offset for eligible entities with a turnover of less than AUD20m (USD15.3m) per year (provided they are not controlled by income tax-exempt entities); and a non-refundable 40 percent tax offset for all other eligible entities. Around 13,700 entities registered and received benefits estimated at AUD2.95bn in 2013-14.

The panel made six recommendations. It said that the Government should:

  • Introduce a collaboration premium of up to 20 percent for the non-refundable tax offset, to provide additional support for the collaborative element of R&D expenditures undertaken with publicly funded research organizations;
  • Introduce a cap in the order of AUD2m on the annual cash refund payable under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income;
  • Introduce an intensity threshold of one or two percent for recipients of the non-refundable component of the R&D Tax Incentive;
  • If an intensity threshold is introduced, increase the expenditure threshold to AUD200m so that large R&D-intensive companies retain an incentive to increase R&D in Australia;
  • Investigate options for improving the administration of the R&D Tax Incentive, including adopting a single application process, developing a single program database, reviewing the two-agency delivery model, and streamlining compliance review and findings processes; and
  • Retain the current definition of eligible activities and expenses under the law, but develop new guidance, case studies, and public rulings to give greater clarity to the scope of eligible activities and expenses.

A public consultation on the recommendations will remain open until October 28. The Government will hold further discussions after all submissions have been received, during November and December. It will finalize its response before the end of March 2017.

Reacting to the report, Jennifer Westacott, Chief Executive of the Business Council of Australia, said: "Changes to the structure of the R&D Tax Incentive must be carefully considered as they would have a powerful impact on businesses in Australia, both small and large. The Government also needs to be mindful of sustaining Australia's international tax competitiveness and the importance of collaboration between business and publicly funded research bodies."

"No doubt, there will be diverse views on what balance will achieve the best outcomes. What matters is we have an open, constructive discussion on the policy settings that will drive our economy, and the job opportunities that can flow from innovation."

TAGS: compliance | tax | business | tax compliance | tax incentives | law | Australia | tax thresholds | tax rates | tax breaks | tax reform | trade association | trade | research and development | Invest

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