Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I move:

That this bill be now read a third time.

I seek leave to have incorporated a statement which was omitted from the previous discussion when this matter was before the chamber.

Leave granted.

The document read as follows—

SENATE

Statement in Support of the Tax Laws Amendment (Research and Development) Bill 2010 and Income Tax Rates Amendment (Research and Development) Bill 2010

In continuation of defining Supporting R&D Activities:

All other supporting activities need to be directly related to core R&D activities.

The dominant purpose test applies only to production activities and activities on the exclusions list. The test safeguards the integrity of the program so that firms do not claim business-as-usual type activities.

These provisions remedy the concern that the R&D Tax Concession allowed claims to be made for activities — particularly supporting activities — where there was little rationale for public support. Without Government action, these claims were likely to continue and to increase. Ensuring taxpayers get better value for their investment is essential for the program's long term sustainability.

We have deliberately applied the Tax Credit to all research and development performed in Australia, because the majority of knowledge dissemination comes from where research and development is performed, not intellectual property ownership.

Intellectual property ownership is no longer a factor limiting businesses' ability to claim support for eligible research and development activities. The Bill removes outdated foreign ownership restrictions on intellectual property under the R&D Tax Concession, recognising today's global business and investment environment.

Software is now subject to the same eligibility tests as other forms of research and development, with the exception of certain in-house software. For example, where software is used for day-to-day business administration of the business, such as management information systems and enterprise resource planning, software

The general rule is that to be eligible, research and development activity must be conducted in Australia. However, the Government is acknowledges that Australia is not home to all necessary infrastructure or expertise, and that circumstances may arise where some research and development can only be conducted overseas. Consequently, R&D conducted overseas will be eligible under the R&D Tax Credit in certain circumstances and subject to certain conditions.

The new R&D Tax Credit provides flexible support for companies no matter whether they undertake research and development - in-house (including on the production line or the factory floor) or if a third party undertakes it externally.

The Tax Credit retains the rule that a company can claim eligible research and development activities conducted only by the company or on its behalf. The rule is applied by weighing up three key criteria to determine the majority beneficiary, namely:

Who 'effectively owns' the 'know—how' or intellectual property to arising from the research and development activities;

Who has appropriate control over the conduct of the research and development activities; and

Who bears the financial burden of carrying out the research and development activities.

This enables identification of the appropriate claimant and prevents the duplication of claims where research and development is contracted out.

Companies can be assured of the eligibility of their research and development prior to their undertaking or registering that activity, by requesting an advance finding from Innovation Australia. The finding is assessed on the information the company provides on application. Should it materially change then the basis for the finding may also change.

Advance findings are binding on the Com­missioner of Taxation to recognise associated research and development expenditures. They apply in the application income year and the following two income years.

And last but certainly not least, firms will be able to receive greater administrative support including clear and comprehensive guidance materials from both Auslndustry and the Australian Taxation Office.

Administrators will always refer to the legislation, Explanatory Memorandum and, legislative instruments in administering the Tax Credit. This will safeguard the policy intent of the program.

Following further stakeholder consultation the Government has adopted recommendations of the Senate Committee relating to ongoing monitoring of the operation of the legislation, the review of the legislation after two years of operation, and the establishment of an advisory group to inform me and my Department of any unforseen conse­quences of this important initiative.

The advisory group, broadly representative of industry, will monitor Is the implementation and operation of the incentive. It will consult industry and advise whether the Tax Credit achieves its objectives and if it secures additional investment in research and development.

The advisory group will be appointed as soon as practicable after the Bills receive Royal Assent.

Today the Government is moving an amendment relating to the commencement date for the R&D Tax Credit, and a request for a consequential amendment. In addition, the Government is moving a request relating to Quarterly Credits.

I will now speak to each of these in turn. In moving the first of these amendments, I share the disappointment of many businesses over the delay in starting the program - especially those small businesses who might have hoped that the program would start from 1 July 2010.

Businesses will now be able to plan their research and development activities with confidence, knowing their entitlement to access the increased benefits available from 1 July 2011.

In moving the second amendment, I would like to acknowledge the assistance of the cross-bench in advancing industry views on Quarterly Credits. This amendment affirms the Government's commitment to listen to industry and act on constructive advice.

In recognition of the unique position of cash-starved firms, the Government will introduce a new element to the R&D Tax Credit: quarterly credits for businesses with a turnover under $20 million, from 1 January 2014.

Quarterly credits will allow small and medium enterprises to choose the option best suited to their business requirements. They can either continue to simply claim the research and development tax incentive at the end of the income year in which the research and development is undertaken, or apply for quarterly credits that will deliver the benefit in the income year the company undertakes activities.

The precise rules governing whether and how a particular firm will be able to receive quarterly credits, and the most efficient and effective means of providing quarterly credits in general, will be determined in the light of experience with the operation of the new R&D tax incentive.

Consequently, it is not feasible to include those details in these amendments, which instead provide for the regime to be implemented through regulations. However, the amendments demonstrate the Government's clear commitment that a quarterly credits regime is to be a part of the new R&D tax incentive.

I commend the Bills to the Senate.

Question agreed to.

Bill read a third time.