Review recommends refocussing R&D incentives on ‘R&D intensive’ businesses – October 2016

Filed under: Economy and Finance, Tax, Employment and Education, Research, Trade and industry,

The Government is seeking feedback from Australia’s research and development (R&D) community, businesses and industry groups and other stakeholders on the findings of the R&D Tax Incentive Review, released by Industry Minister Greg Hunt.

The review was undertaken by the chair of Innovation Australia Bill Ferris, Australia’s Chief Scientist Alan Finkel and Treasury Secretary 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 Australian Financial Review reported “The amount companies can spend on research and development and receive a tax offset should be doubled to $200 million, a review of the $3 billion R&D tax incentive program has recommended.

It said “The government has already legislated a cut in the rate of the R&D tax offset, from 45 per cent to 43.5 per cent for companies with turnover less than $20 million, and from 40 per cent to 38.5 per cent for other companies, as part of broader budget savings measures.

The review's report found the $100 million annual cap on tax-offsetting R&D tax expenditure was a handbrake on innovation. However the cap should only be lifted to $200 million if accompanied by an “intensity threshold” whereby R&D must exceed “1 to 2 per cent” of business expenses to qualify for the R&D tax offset.

Mr Hunt said the R&D Tax Incentive aimed to boost the quality and quantity of R&D undertaken by industry to drive productivity and growth. “It’s a fundamental part of Australia’s R&D system and accounts for around one-third of the Government’s support for innovation,” he said.

“In 2013–14, around 13,700 entities generated $19.5 billion of R&D at an estimated cost to government of around $3 billion.

“Innovation is crucial for both established and new businesses. It’s not just about tech startups or IT; it’s also about established businesses doing things better to be more productive and stay competitive.

“The review includes recommendations to improve the effectiveness and integrity of the program, including encouraging additional R&D expenditure and improving business-research collaboration.

“The Turnbull Government is committed to pursuing innovation, and the economic opportunities and jobs it will generate. That’s why it’s important to ensure the Government’s significant investment in R&D is generating maximum benefit for the economy and the Australian public,” Mr Hunt said.

The Government is undertaking a three-stage consultation on the report, with the first stage for which the Government is inviting submissions for an open consultation, to finish on 28 October.

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