Attracting overseas R&D dollars: Tax scheme overhaul

James Riley
Friday, 18 September 2009 14:05

IT Policy - Government Tech Policy

Treasurer Wayne Swan and Industry Minister Kim Carr have released a discussion paper on the tax incentive overhaul that should make investment in Australian R&D more attractive to local companies and multinationals.

Local and overseas companies seeking input into the design of the scheme have until October 26 to get submissions to Government ahead of the drafting of legislation.

The scheme, which replaces the current R&D tax concession scheme, is the biggest overhaul of research and development tax incentives in a generation and is expected to cost at least $1.4 billion over four years.

The R&D Tax Credit was recommended by Dr Terry Cutler’s Review of the National Innovation System and aims to reduce the complexity of Government incentives – and to make the incentives more predictable to innovators.

Importantly in terms of attracting offshore companies to conduct R&D in Australia, Companies will no longer need to distinguish between their base and incremental expenditure on R&D in working out their claim.

Rather, it is the location of R&D activity in Australia that will count under the new scheme rather than where the resulting intellectual property (IP) rights reside.

The scheme is a huge shot in the arm for R&D activities in Australia returning the level of incentive to the 150 per cent tax concession that applied in the Hawke/Keating years. The reduction was reduced to 125 per cent more recently.

Treasury figures indicate a 45 per cent tax credit – the level proposed by the Cutler review – is equivalent to a 150 tax concession.

The two core components of the new incentive are: a non-refundable 40 per cent Standard R&D Tax Credit; and a 45 per cent Refundable R&D Tax Credit for companies with a turnover of less than $20 million.

Though a generic scheme applied across all industries, the Tax Credit is expected to provide a huge boost for local developers in the ICT sector.

Coupled with the delivery of the 100mbps fibre to the home and the IP changes about where IP ownership will reside, the changes are expected to be attractive to multinationals seeking a test-bed market for communications services and applications.

The Treasurer and Senator Carr today issued a consultation paper to drive discussion of the scheme, seeking submissions from potential users of the scheme. It also outlines some of the tightened definitions and eligibility criteria of the scheme.

"The consultation paper works from the basic principle that the reformed scheme will provide more generous support for R&D to help build a more innovative economy," Senator Carr said.

"The paper also poses a range of questions to business about how the Government could approach certain aspects of the scheme’s design.

"The consultation paper delivers on the Government’s promise to involve business and other stakeholders in the development of the eligibility criteria for the new credit," he said.

Stakeholders will have another opportunity to comment on draft legislation later this year. Submissions to the consultation paper a must be made by October 26.

The new scheme would boost investment, support jobs and strengthen Australian companies so they can take full advantage of new opportunities as the economy recovers.