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Access to tax breaks threatened under new recommendations

Tax

Recommendations of a major report into innovation, if implemented, could see the scope of the R&D tax incentive significantly restricted.

By Katarina Taurian 11 minute read

The Innovation and Science Australia (ISA) annual report ultimately encourages more focus on direct funding for industry from the government, which typically occurs through the provision of grants and upfront funding. Indirect funding includes models like the R&D tax incentive, which requires an upfront spend which is later offset.

Evening out the balance between direct and indirect spending would put Australia more in line with international practice, but R&D director at KPMG, Georgia King-Siem, believes it’s a “double-edged sword” as far as the incentive goes.

Direct funding would allow the government to better target its spending, and boost industries in need of innovation funding.

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“However, markets that the government considers either not a strategic priority or not globally competitive will miss out,” Ms King-Siem told Accountants Daily.

“What you might end up with is a company that was claiming the R&D tax incentive will no longer be able to,” she said.

“So there will be winners out of this, but there are inevitably going to be losers as well,” she said.

There is a general sense in the profession that the R&D tax incentive is on shaky ground, which has been compounded by a series of reviews - notably the 2016 Ferris, Finkel and Fraser review - and regulatory tinkering through a series of ATO alerts.

PwC has also reported “very noticeable” hold-ups in refunds for clients, compounded by the high levels of scrutiny the tax office applies to claims.

“There is this constant tweaking. It causes instability in the market because people just don’t know if it’s the last change and if it’s stable. How do you budget your five or six-year innovation spending like that, what does the roadmap look like?” Ms King-Siem said.

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