Thursday, 5 December 2019
Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019; Second Reading
That this bill be now read a second time.
The government is committed to backing R&D in Australia and the economic opportunities and jobs it creates.
In 2019-20 the government's total support for R&D is estimated to be around $9.6 billion. This includes almost $400 million for our Medical Research Future Fund and record funding of over $860 million for Australia's national science agency, the CSIRO.
Today the government is reintroducing legislation to reform the research and development tax incentive—reforms that will ensure that the tax incentive remains an effective and sustainable part of Australia's overall support for R&D.
The reforms, announced in the 2018-19 budget, are a response to the six-month 'three Fs' review into the incentive, chaired by former Treasury Secretary John Fraser; then Chair of Innovation Australia, Bill Ferris; and Australia's Chief Scientist, Alan Finkel.
That review found that the incentive is falling short of meeting its objectives of supporting additional R&D activities that generate broader benefits for the Australian economy.
The measures contained in this bill respond to these findings.
The key reforms to the incentive are contained in schedule 1 to the bill.
Firstly, the existing flat premium available to companies with an annual turnover above $20 million is being changed to one that increases as a company's R&D intensity increases. This will provide an incentive for companies to increase their R&D expenditure.
Relative to the bill introduced in the previous parliament, the intensity test has also been simplified, with a three-tier test replacing the previous four-tier system.
Secondly, the maximum amount of R&D expenditure eligible for concessional R&D tax offsets will increase from $100 million to $150 million per annum. This gives the largest investors in R&D an incentive to keep their R&D activities in Australia.
Smaller companies, with an annual turnover below $20 million, will continue to be supported by the government through fixed R&D support of 13½ percentage points above their company tax rate. To ensure the sustainability of the regime, they will have their annual cash refunds capped at $4 million, twice the amount recommended in the review. Clinical trials are exempt from this cap.
Importantly, the start date of the measure has been deferred by 12 months so that the changes apply from income years commencing on or after 1 July 2019.
Schedule 2 of this bill will introduce a number of amendments into the income tax law to bolster the integrity of the incentive. These changes will ensure that the concessional treatment available under the incentive is only claimed by those companies undertaking genuine R&D.
Schedule 3 of this bill makes a number of changes to the tax incentive regime to improve public accountability and transparency.
This includes the public disclosure of claimant details and the R&D expenditure they have claimed. Furthermore, the board of Innovation and Science Australia will have the ability to make public determinations and binding decisions about R&D eligibility, providing greater clarity to claimants as to what is eligible.
In better targeting and improving the integrity and sustainability of the research and development tax incentive, the reforms in this bill will ensure that the incentive remains an important part of the government's overall support for research and development in Australia.
Full details of these measures are contained in the explanatory memorandum.