On 28.9.16, the Federal Minister: Greg Hunt released the report from the The review was undertaken by Chair of Innovation Australia Bill Ferris, Australia’s Chief Scientist Alan Finkel and Secretary to the Treasury John Fraser, to:
“Identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive, including by sharpening its focus on encouraging additional R&D spending.”
The review of the effectiveness of our current tax incentives was commissioned as it represents about 1/3rd of the Government’s financial assistance to research and a development (R&D). In 2013–14, around 13,700 entities generated $19.5 billion of R&D at an estimated cost to government of around $3 billion.
The report stated, in its introduction:
The panel found that the programme falls short of meeting its stated objectives of additionality and spillovers. We make six recommendations to be considered as a package of measures to improve the overall effectiveness and integrity of the programme while encouraging additional R&D. The recommendations reflect the available evidence and the panel’s analysis and judgment informed through consultations with stakeholders. The areas of improvement identified in this review would be likely to generate greater benefit for the Australian economy. In particular, although collaboration is not a focus for the programme, the panel believes that the modest existing levels of collaboration between industry and research institutions represents a lost opportunity and we recommend providing a higher tax offset to encourage greater levels of collaboration.
* ‘additionality’ is the additional support the tax incentives give to start-ups and SME’s by making some of the off-set refundable.
* ‘spillovers’ is the spillover of knowledge and experience from one company’s R&D to staff, other companies and publicly funded research organisations.
Those 6 recommendations are as follows.
- 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.
- Introduce a collaboration premium of up to 20% 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 3 years of employment. If an R&D intensity threshold is introduced (Recommendation 4), companies falling below the threshold should still be able to access both elements of the collaboration premium.
- 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.
- Introduce an intensity threshold in the order of 1 to 2% 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.
- 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.
- That the Government investigate options for improving the administration of the R&D Tax Incentive (eg adopting a single application process; developing a single programme database; reviewing the 2-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.
The Minister said that implementation of the review recommendations would proceed through the following three phases.
- First, submissions are invited from now until 28 October 2016. This will be accompanied by industry and state-based roundtables in all states and territories.
- Second, the Government will hold further discussions after all submissions have been received, during November and December.
- Third, the Government will respond as part of a broader National Innovation and Science Agenda second wave, with the intention of finalising our response before the end of March 2017.