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R & D Tax Incentive Consultation Open
Opinion
18 September 2009
‘The new research and development tax incentive’ consultation paper, released today –
Opinion provided by Alun Needham, Executive Director, Research and Development, Ernst & Young.
Treasurer Wayne Swan and Innovation Minister Kim Carr released ‘The new research and development tax incentive’ consultation paper on Friday 18 September.
The consultation paper outlines the Government’s thoughts about the implementation of the new R&D tax credit system from 1 July 2010. The consultation paper discusses the new mechanisms attached to delineating eligible R&D as well as the administrative aspects to the new R&D tax credit. The key points to this consultation paper are highlighted below as well as the design principles governing the introduction of the new R&D tax credit.
Key Points
Targeting R&D incentives to activities that demonstrate “additionality” and “spillovers”
The principle of R&D activity additionality and spillovers (generation of societal or other benefits to Australia) is being introduced. This principle is proposed to govern the development of the rules for what activities will be eligible for the new R&D tax credit. The aim of this principle is to target the incentive to increase the value add of R&D tax claims.
Definitional change to Core R&D activities
It is proposed that under the new system a Core R&D activity should involve both innovation AND high levels of technical risk. At present a Core R&D activity is required to involved innovation OR high levels of technical risk.
Location of activities
The consultation paper asks (question 1) whether Government might allow a company to claim expenditure in relation to R&D conducted overseas provided some R&D has been undertaken in Australia first. This would be an exception to the 10 per cent cap currently in place on overseas expenditure. This presents as an important opportunity to the biotech community.
Limiting the benefit available to supporting R&D activities
The consultation paper contains a proposal to limit the significance of supporting R&D activities in R&D tax credit claims. The proposed limitations for discussion (question 4) include:
Should supporting activities:
· be capped as a proportion of expenditure on core R&D?
o If so, what would be the appropriate proportion (for example, 1:1)?
· only be eligible where they are for the sole purpose of supporting core R&D activity?
· exclude production activities or dual role activities?
· only be eligible on a net expenditure basis?
· attract a lower rate of assistance than core R&D?
o If so, what would be the appropriate rate be?
Exclusions
A question was introduced (question 5) in the consultation paper to consider if exclusions to core activities be amended in any way or increased to extend exclusions to supporting activities.
Administration
It is proposed that eligible companies will have to report core and supporting activities separately and that further guidance will be produced by the regulator to assist with this change.
Design Principles
The primary design principles for the new R&D Tax Credit are tabulated below (page 15 of the new research and development tax incentive consultation paper, Australian Government, September 2009).
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Design principles |
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Principle 1 |
The new R&D tax incentive will be available to companies incorporated in Australia for R&D conducted in Australia. Location of ownership of the resulting IP will not be relevant. |
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Principle 2 |
The Standard R&D Tax Credit will be available at a rate of 40 per cent for eligible R&D expenditure and can be carried forward where a company’s income tax liability is zero. |
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Principle 3 |
The Refundable R&D Tax Credit will be available to companies with a turnover of less than $20 million at a rate of 45 per cent for eligible R&D expenditure. |
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Principle 4 |
Legislation for the new R&D tax incentive will provide support for the scheme’s efficient and effective administration. |
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Principle 5 |
The new R&D tax incentive should target R&D that: (a) is in addition to what otherwise would have occurred; and (b) provides spillovers — benefits that are share by other firms and the community — that are large relative to the associated subsidy. |
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Principle 6 |
Eligible R&D activity will be defined as systematic, investigative and experimental activity that: (a) involves both innovation and high levels of technical risk; and (b) is for the purpose of producing new knowledge or improvements. |
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Principle 7 |
Supporting R&D will continue to be recognised under the new R&D tax incentive but claims will be subject to new limitations. |
The Next Step
Consultations with stakeholders will now take place hosted by local AusIndustry offices. Submissions in response to the consultation paper are then required by Monday 26 October 2009.
For a copy of the media release go to http://minister.innovation.gov.au/Carr/Pages/NEWRDTAXCREDIT.aspx
For a copy of the paper go to www.treasury.gov.au. then go to 'What's New'
The BioMelbourne Network and Ernst and Young are proposing to arrange a forum discussion in the coming weeks. If you are interested in participating please email Michelle Gallaher on mgallaher@biomelbourne.org.
