R&D Tax Incentive Review

The Australian Government announced its intention to examine support for R&D Tax Incentive programme in the context of the Tax White Paper (TWP).

Overview

The R&D Tax Incentive Review is aimed to identify opportunities to improve the effectiveness and integrity of the R&D programme, including how its focus could be sharpened to encourage additional R&D.

Background

The Tax White Paper discussion paper, Re:think – Better tax, better Australia External Site, was released for public consultation on 30 March 2015, with the R&D Tax Incentive Review included as a feature.

R&D Tax Incentive recommendations

The six R&D Tax Incentive recommendations include:

1. Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.

2. 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 organisations. The premium would also apply to the cost of employing new STEM PhD or equivalent graduates in their first three years of employment. If an R&D intensity threshold is introduced (see Recommendation 4), companies falling below the threshold should still be able to access both elements of the collaboration premium.

3. Introduce a cap in the order of $2 million 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.

4. Introduce an intensity threshold in the order of 1 to 2 percent for recipients of the non-refundable component of the R&D Tax Incentive, such that only R&D expenditure in excess of the threshold attracts a benefit.

5. If an R&D intensity threshold is introduced, increase the expenditure threshold to $200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia.

6. That the Government investigate options for improving the administration of the R&D Tax Incentive (e.g. adopting a single application process; developing a single programme database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes) and additional resourcing that may be required to implement such enhancements. To improve transparency, the Government should also publish the names of companies claiming the R&D Tax Incentive and the amounts of R&D expenditure claimed.

Purpose

The R&D Tax Incentive Review will evaluate the programme’s effectiveness and efficiency, as well as assessing the extent to which it is meeting its intended policy objectives.

Stakeholders

There will be opportunities for stakeholders to put forward their views through a number of processes, including an upcoming survey of programme registrants and targeted stakeholder consultations.

Other Submissions

Stakeholder views on the programme which have already been provided through submissions to the Tax White Paper discussion paper, Re:think External Site, the 2014 Senate inquiry into Australia’s innovation system External Site, and the Chief Scientist’s 2015 consultation paper, Vision for a Science Nation – Responding to Science, Technology, Engineering and Mathematics: Australia’s Future, have been made available to the Review consultant, CIE.

Why now?

As the R&D Tax Incentive has now been in operation for more than three years, stakeholders are well-placed to provide informed perspectives on the R&D Tax Incentive in relation to its policy design, administration and effectiveness.

Survey

A survey of R&D Tax Incentive registrants will be undertaken in the coming months to seek companies’ views on the programme. The outcomes of the survey will help to inform the targeted consultations that will follow.

Independent Consultant Advising Review

The Centre for International Economics (CIE) has been engaged to provide independent advice to the Review of the R&D Tax Incentive programme.

CIE is a Canberra-based private economic research agency that provides professional, independent and timely analysis of international and domestic events and policies. The company brings with it immense experience and highly skilled staff which will ensure a robust and comprehensive review is conducted.

Terms of Reference for the review of the R&D Tax Incentive Programme:

Need
1. How is the R&D Tax Incentive programme, its policy rationale (including addressing market failures) and objectives, contributing to meeting the Government’s broader economic objectives as articulated in the Industry Innovation and Competitiveness Agenda?
2. Is the R&D Tax Incentive the right vehicle to drive business innovation?
Design and Theory
1. To what extent does the design and features of the R&D Tax Incentive, including changes introduced through recently passed legislation, appropriately address the policy objectives of the programme?
2. How does the R&D Tax Incentive programme compare with international practice?
3. Does the R&D Tax Incentive have a role to play in facilitating greater researcher-industry collaboration?
Process and Implementation
1. Since its introduction, has the R&D Tax Incentive programme been effectively implemented and administered?
2. Is the R&D Tax Incentive programme well understood by stakeholders and easy to access?
Outcomes and Impacts
1. To what extent does the evidence indicate that the R&D Tax Incentive is meeting its policy objectives, including encouraging additionality, as well as enabling the improved realisation of returns and improved decision making by firms, and identify areas for further improvement?
2. How does the R&D Tax Incentive contribute to Australia’s international competitiveness, at both the firm level and for the innovation system as a whole, and can it be improved upon?
3. How can the impacts of the R&D Tax Incentive programme best be evaluated in the future?
Cost and Efficiency
1. Can the cost of the R&D Tax Incentive programme be better understood and estimated?
2. In light of the Government’s Deregulation Agenda, how could the R&D Tax Incentive programme be made more efficient and less burdensome on participants

Timing

Submissions close 28 October 2016.

More Information

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