The government aims to save A$2 billion by tightening its R&D Tax Incentive scheme.
The 2018-19 Australian budget set aside around A$2.4 billion to upgrade Australia’s science and technology research facilities, including an A$1.9 billion investment in the National Research Infrastructure (NRI) over the next 12 years.
However, Treasurer Scott Morrison flagged that there would be major changes to the existing tax incentives for R&D.
“We are cracking down to ensure that R&D tax incentives are used for their proper purpose, with enhanced integrity, enforcement and transparency arrangements, saving taxpayers A$2 billion over the next four years,” he told Parliament in his budget speech.
He presented the change as a “refocusing” of the tax incentive and said it would “support companies genuinely investing in R&D.”
The changes come on the back of the government’s 2016 review of the R&D Tax Incentives (R&DTI). That year, it produced a review which concluded the incentives were not meeting their stated policy objectives.
The new scheme will also see statutory body Innovation and Science Australia have the power to set precedent on R&DTI claims.
In a press release, Senator Michaelia Cash (who is Minister for Jobs and Innovation) said the revised R&DTI would allow the government “to give more assistance to those that invest a higher proportion of their spending in R&D.”
She also said the new scheme would “crack down on R&D tax claims that push the boundaries of the R&DTI, with enhanced integrity, enforcement and transparency arrangements.”
— Scott Morrison (@ScottMorrisonMP) May 8, 2018
A statement released by Morrison argued the R&DTI had been abused by some claimants who “engaged in behaviour such as incorrect self-assessment of eligible R&D activities, exaggerating their expenditure claims, ‘pushing the boundaries’ of the interpretation of the R&D definition and engaging in other forms of non-compliance.”
Industry concerns: CEOs respond to the budget
Some of Australia’s technology and start-up CEOs have strongly criticised the change, arguing it will discourage innovation and may cause companies to shift offshore.
Mandeep Sodhi, CEO of online home loan marketplace HashChing, said: “Making it harder for Australian businesses to take advantage of the R&D tax incentive is a mistake.
“It will only serve to stifle innovation, forcing our best and brightest to relocate to countries where innovation is fostered and better supported by the government, putting plenty of local jobs on the chopping block.
“If Australia is to truly compete on a global playing field, then the government needs to make a substantial investment into R&D.”
If Australia is to truly compete on a global playing field, then the government needs to make a substantial investment into R&D – Mandeep Sodhi, CEO of HashChing
Michael Jankie, CEO of social wi-fi start-up PoweredLocal, also emphatically rejected the change.
“The R&D tax limitations are a terrible idea as they were an ideal incentive.
“Spending money on Australian research and development to get some of it back provides magnitudes of benefits.
“What if R&D has us stumble on the next bit of technology like we did with wi-fi?”
Gareth Gumbley, CEO of digital finance app Frollo, was another to voice his opposition to the changes to the R&DTI.
He raised the possibility of large companies moving operations out of Australia to countries with more favourable taxation systems.
— Financial Review (@FinancialReview) May 9, 2018
Beau Leese, co-CEO of educational technology startup Intersective, noted that there was no mention of innovation in Morrison’s budget speech. “A 21st century economy needs significant investment in skills and innovation,” he said.
Mick Spencer, CEO and founder of sportswear manufacturer ONTHEGO, said the decision to cap the cash refund available to companies with an annual turnover below A$20 million to A$4 million was a “cause of concern,” for start-ups with a heavy R&D spend.
“This will make it harder for disrupters to continue to innovate,” he added.
Spencer did however welcome the greater transparency and accountability in the revised scheme.
Philippe Odouard, Managing Director of integrated solutions provider Xtek, was a dissenting voice in describing the R&DTI changes as fair. He argued that a 20 per cent spend on R&D was high and that any spending beyond this percentage did not warrant further tax incentives.