The startup community is gearing up to have a frank chat to the federal government.
Minister for industry, innovation and science Greg Hunt today released the R&D Tax Incentive Review report and called for business, industry and research community to have their say in the coming month.
The review, which was completed in April, was performed by Innovation Australia chair Bill Ferris, Australia’s chief scientist Alan Finkel and secretary to the treasury John Fraser to “identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive, including by sharpening its focus on encouraging additional R&D spending”.
The panel made six recommendations — three to encourage R&D that would otherwise not take place, and three to boost the “integrity and effectiveness” of the tax incentive:
- Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.
- Introduce a collaboration premium of up to 20% for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly funded research organisations. The premium would also apply to the cost of employing new STEM PhD or equivalent graduates in their first three years of employment. If an R&D intensity threshold is introduced (see #4), companies falling below the threshold should still be able to access both elements of the collaboration premium.
- Introduce a cap in the order of $2 million on the annual cash refund payable under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income.
- Introduce an intensity threshold in the order of 1-to-2% for recipients of the non-refundable component of the R&D Tax Incentive, such that only R&D expenditure in excess of the threshold attracts a benefit.
- If an R&D intensity threshold is introduced, increase the expenditure threshold to $200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia.
- That the government investigate options for improving the administration of the R&D Tax Incentive (e.g. adopting a single application process; developing a single programme database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes) and additional resourcing that may be required to implement such enhancements. To improve transparency, the Government should also publish the names of companies claiming the R&D Tax Incentive and the amounts of R&D expenditure claimed.
StartupAUS chief executive Alex McCauley received the report positively, but with caution.
“We welcome elements of the review. We agree that reducing the administrative burden and providing greater transparency are positive steps,” he said.
“Overall, however, we believe more focus needs to be on the pointy end of the program, where dollars spent on startups translate directly into jobs produced and additional R&D being conducted.”
The government is seeking comment from now until October 28, aided by roundtables across the country. It will then review the feedback before handing down its final response in March as part of a wider National Innovation and Science Agenda announcement.
According to the minister, $19.5 billion of R&D was generated by more than 13,000 entities at an estimated cost to the government of around $3 billion in 2013–14.