House debates

Monday, 22 November 2010

Tax Laws Amendment (Research and Development) Bill 2010; Income Tax Rates Amendment (Research and Development) Bill 2010

Second Reading

12:58 pm

Photo of Bernie RipollBernie Ripoll (Oxley, Australian Labor Party) Share this | Hansard source

It is a pleasure for me to speak on the Tax Laws Amendment (Research and Development) Bill 2010 and the Income Tax Rates Amendment (Research and Development) Bill 2010. These are important bills and highlight the continued effort and commitment that the Australian Labor Party and this government have to all of the business enterprises in this country—large, medium and small—particularly for their research and development expenditure. It is a fact that over a period of time, while coalition governments reduced funding and reduced the capacity of people to access this funding, it was Labor governments that increased that funding in dollar terms, not only in the quantum but also in the quality of the schemes that are put forward.

The changes that we are debating today are exactly that—good, quality changes that are well supported. Contrary to what we have heard in this place, the changes are supported by many senior and eminent people in business and in industry, people who have the experience and the knowledge to comment on these issues. The changes have been supported by people like Mr Ian Birks, the CEO of the Australian Information Industry Association; Dr Anna Lavelle, CEO of AusBiotech; Mr Antony Reed, CEO of the Games Developers Association of Australia; and a whole host of others, including TGR Biosciences, the Australian Coal Association Research Program, the Australian Industrial Research Group, the CEO of Medicines Australia, the tax council of the Institute of Chartered Accountants, the CEO of the Australian Private Equity and Venture Capital Association and a range of other people. It is actually quite a widely supported amendment.

This bill does many good things. There have been some critics and there always will be. We ought to expect that. No-one should ever expect that changes such as these, in whatever form they come, will suit everybody absolutely or exactly. That means that, sometimes in these processes, there are people who find they sit in a slightly different position to where they might have sat in the past. But that is exactly the point of change; that is exactly why we are here today—to make those changes.

This government is trying to ensure that more businesses are eligible for the available $1.6 billion pool of funds. We want to make sure that it goes to a larger group of people and that those funds are absolutely fully expended, but we also want to make sure that they are expended in the best possible manner—that the expenditure is targeted and makes sense. We want to make sure that taxpayer funding is supporting the type of research and development that should take place in this country.

So we ought to be very careful about the sort of debate we have in this place, especially about the presumption that this is all about reducing funding. There is no funding reduction. The same pool of funds is available—$1.6 billion. Similarly, there have been assertions that the changes will be, in some way, detrimental to manufacturing or to manufacturing R&D. It is clear that that is not the case. The manufacturing sector will have as much eligibility as any other sector. The same rules will apply across the board.

Another area where there has been a range of comments is consultation, but there has been quite a substantial amount of consultation and a substantial period of time for people to absorb the changes. In general—and I even hear it from the opposition—people say that it is good change. They say that it is a good set of amendments and that it is good change. It tightens up the rules and tightens up the way in which the R&D tax incentives operate.

The proposed R&D tax credit is a tax incentive. It is there to encourage companies to undertake genuine research and development. That is what it ought to do and that is what we are making sure it does. The tax credit is a major element of this government’s policy to increase research and innovation. We are making sure that more enterprises in this country have access to this type of assistance and funding. We are doing that to make sure those enterprises can continue to be innovative.

These reforms are in line with the report Powering ideas: an innovation agenda for the 21st century and are the biggest reforms to business innovation support for more than a decade. Like many other things that we are introducing into this place, they are the biggest reforms in more than a decade and they are positive reforms. They involve better funding or more funding, a tightening of the rules, better eligibility and assurance that we are looking after industry in the area of innovation.

What we are putting forward has, in fact, been rated as world’s best practice by no less than KPMG in a recent report comparing government incentives internationally to support business R&D. So there you have it. We heard before about some tax firms that are not happy with certain elements, or certain parts, of the changes, but KPMG have found that the two big changes—the actual size of the incentive, increased in this legislation, particularly in the refundable category for small and medium enterprises, and the way it is targeted and structured—are in line with world’s best practice. Everyone needs to benchmark what they are doing. We should not sit outside of what is regarded, across the globe, as the best way to do things, and KPMG are saying that what we are doing is rated as part of world’s best practice. I think that boosts the government’s argument.

There are around two million businesses in Australia, but the startling figure is that only about 8,000 of these businesses benefit from the current R&D tax concession. This government wants to increase that number. Eight thousand is too few; it is too small as a number and too small as a percentage. The reality is that more businesses should benefit from this very good incentive.

There are two key components to this R&D tax credit and they are quite simple. Small and medium enterprises—companies which have an aggregated turnover of less than $20 million—will receive a 45 per cent refundable credit. What ‘refundable’ means is that, where an enterprise has a tax loss for the year in which the R&D is performed, that enterprise can receive a cash refund. This is a massive incentive to invest, to innovate and to move forward. This has been well supported by everybody including, I assume, the opposition, even though they complain. Larger firms—companies with an aggregated turnover of $20 million or more—will receive a 40 per cent non-refundable tax credit. It is non-refundable, but any of the unused portion can be carried forward to reduce future tax liabilities.

The 45 per cent refundable tax credit doubles the base rate available to SMEs under the existing R&D tax concession from 7½c in the dollar to 15c in the dollar. The 40 per cent non-refundable tax credit raises the base rate of R&D tax incentive for larger firms by a third, from 7.5c in the dollar to 10c in the dollar. These are significant changes, they are good changes and they will have the right impact. They will have the exact impact they are intended to have, which is to encourage people to invest in research and development. The intention of the government is clear: the R&D tax credit will be available from the income year starting 1 July this year, giving businesses and enterprises an opportunity to do their R&D and claim those incentives immediately.

We will continue, as I said in my opening remarks, to fully fund the $1.6 billion in research and development incentives available to enterprises annually. There will be no reduction in the amount. I know there will be scare campaigns from the other side. I know they will be going out there and saying to people, ‘You will have less,’ but it is just not the reality. It is not fact and it is not the intention. The intention of these amendments is to provide a better rate, a more generous rate, and it is to encourage genuine research and development.

The new tax incentive will greatly assist firms as it will be better targeted, and that has to be a key. It is more generous, it is more predictable and it takes away some of the complexity. It provides increased financial support. It also gives support to companies that are in a tax loss position by providing cash refunds, and that will bring more companies into the scheme. I cannot see how anyone would want to deny having access for more firms. If we can spread the pool to a larger number of companies, we will also spread the pool of innovation. That should be a key component and something that is supported by everybody. It will be a redistribution of support in favour of small and medium enterprise. If we are all to be genuine in this place, if we say that small business is the backbone of the economy then we ought to support that. We want to improve that support through this very targeted and generous R&D tax concession.

We also want to make sure that we increase certainty by decoupling the incentive from the company tax rate, making sure that they are separate. The tax credit will provide business with a measure that is simple, predictable and adopts international best practice and is something that should be well and truly supported by the opposition. The new scheme is a broad- and entitlement-based scheme. It expands access to foreign owned companies and to companies that hold their intellectual property offshore but are doing work and innovation here. The support that will be available to these firms will not stop there.

There are further incentives. There will be greater administrative support from AusIndustry, including the ability to seek an advanced finding on the eligibility of R&D activities. People will be able to move more quickly and with better clarity about their eligibility, and there will be comprehensive guidance materials from AusIndustry and the ATO to make it easier for small business to receive the R&D tax incentive. AusIndustry will also undertake site visits on request to demonstrate how the new R&D tax incentive will operate, and business will no longer need to submit an R&D plan at the registration stage, which will help small business firms through a reduced compliance burden.

We are back here with this bill because it lapsed as a result of the election being held earlier this year and now needs to be reintroduced. Now, though, it incorporates some minor changes that have been circulated as proposed government amendments, and those amendments came out of issues raised by the Senate Economics Legislation Committee. The two amendments in particular I am speaking of are to the Tax Laws Amendment (Research and Development) Bill 2010. Proposed amendment (1) is a clarification of the objects clause and amendment (2) is a clarification of the scope of core R&D activities. This will provide the certainty that business has been looking for.

This is a good bill. It continues a great research and development scheme, and it continues to fully fund the $1.6 billion. It does mean there is a better incentive for small and medium enterprise, and there is a doubling of the tax offset and the rebate, particularly in the refundable category. It also means that for large firms not only is there an increased amount but also there is more certainty about how it is applied. It is a good bill and, while there have been some criticisms, those criticisms I think will be found to be not justified over time and the amendments will work very well to produce the outcome the government desires, which is to have more targeting and more firms actually access the R&D grants. I commend the bill to the House.


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