R&D tax credit set to be changed but expert says more work is needed

The Government has amended the R&D tax credit legislation ahead of its introduction into Parliament but tax experts say the minor changes don’t go far enough and the retrospective starting date needs to be changed.

According to official documents the legislation will not appear before Parliament today. Institute of Chartered Accountants tax counsel Yasser El-Ansary says the detail of the legislation won’t be known until the bill is introduced, which is likely to be tomorrow.

Innovation Minister Kim Carr’s office confirmed the two changes will target the “objects clause” of the legislation, and will clarify the scope of “core” R&D activities.

“The amendment includes additional words to confirm that the R&D Tax Credit can extend to experimental activities for the purpose of generating knowledge in the applied form of new or improved materials, products, devices, processes or services.”

“This amendment clarifies that the creation of new or improved materials, products, devices, processes or services is not precluded from being a core R&D activity in the definition of core R&D activities.”

No further information has been given as to what these amendments will exactly contain.

El-Ansary says it appears the Government is trying to clarify the intended “policy objectives” of the legislation.

“The changes will go some way to improving the understanding of the new regime. But as I also understand it, the Government is not proposing to introduce amendments to exclude companies under $20 million from the dominant purpose test.”

Labor will need the independent MPs to support the bill before it passes Parliament. The Liberal party has previously said it hopes Labor has amended the legislation before introducing it to Parliament.

Opposition innovation spokesperson Sophie Mirabella was contacted for comment, but a spokesperson said the party will not make an official comment before the amendments are publically made available.

El-Ansary says despite a lack of detail so far, the proposed amendments could open up new avenues for companies struggling with R&D.

He also says there could be a last-ditch effort to have a retrospective starting date changed before the bill is introduced.

“There may well be a last-minute effort on the part of a number of stakeholders to convince the Government that the reform package should have a changed starting date from July 1, 010 to 2011.”

El-Ansary and other tax experts have argued the retrospective date should be changed in order to quash uncertainty among SMEs. Carr does not share that view and recently told SmartCompany that businesses should be able to claim R&D for expenditure from July 1, 2010 onwards.

El-Ansary says the industry will be waiting until tomorrow when the amendments are suspected to be unveiled.

“Obviously we will be keenly watching. But it is our understanding the amendments will be made public once they are introduced into Parliament.”