In September last year, the government announced the introduction of Treasury Laws Amendment (Making Sure Multinationals Pay their Fair Share of Tax in Australia and Other Measures) Bill 2018, with a significant number of measures aimed towards the R&D tax incentive.
Among the changes will be the introduction of an intensity-based R&D tax offset for companies with a turnover of $20 million or more; the introduction of a cap of $4 million per year on the refundable tax offset; and link the R&D tax offset for refundable R&D tax offset claimants to claimants’ corporate tax rates plus a 13.5 percentage point premium.
Chair of the economics legislation committee Senator Jane Hume has called for the government to defer consideration of the bill until further examination and analysis of the impact is taken.
In particular, Ms Hume has recommended that the approach to the cap on the refundable portion is refined, and that the formula for the R&D intensity is further examined.
During its inquiry, the committee heard from various stakeholders who said the 1 July 2018 start date would disrupt current and future investments in R&D activities that have already been scheduled, particularly noting that there are often long lag times in developing R&D initiatives.
It also heard that the proposed amendment to the refundable tax offset, in line with the proposed progression reduction of the corporate tax rate, would see the R&D offset ultimately lowered from 43.5 per cent to 38.5 per cent, making it uncompetitive against countries such as Germany, the United Kingdom, the United States, Canada and Singapore.
The proposed intensity premium also sparked concerns that it would add complexity, regulatory burden and uncertainty to the scheme.
BDO R&D Tax Partner Nicholas Parry welcomed the committee’s recommendations, noting how the proposed measures would have forced businesses out of the scheme once they did a cost-benefit analysis.
“If it had gone through as is, there would be less incentive for R&D spending among larger companies under the new ‘intensity measures’,” said Mr Parry.
“The irony is that these are medium to large Australian businesses who have greater capacity to set up their R&D offshore.
“Businesses would need to be spending at least 13.25 per cent of expenses on R&D to get a higher tax offset than they had been, and hardly any Australian companies with turnover above $20 million are doing that or even can do that,” he added.
“BDO remains supportive of a cap to ensure sustainability of the program but we’re pleased that the committee recognised concerns regarding the lack of transition arrangements and the potential broadening of the carve out for clinical trials.”