Mixed reviews for Government’s R&D tax credit system

Small businesses will get more support from the Federal Government’s reworked research and development tax credit system, according to Innovation Minister Kim Carr.

Yesterday, the Tax Laws Amendment (Research and Development) Bill 2010 was passed through the House of Representatives.

If passed through the Senate, the system will be transformed from a tax concession scheme to a tax credit scheme.

Carr said in a statement that businesses will receive more support for R&D under the legislation.

“The outmoded tax concession failed to deliver sufficient incentives to Australia’s engine room and small and medium enterprises, and allowed some companies to use taxpayer dollars to subsidise ‘business-as-usual’ activities rather than genuine R&D,” he said.

“Reforming business R&D support will deliver better value for money for business and Australian taxpayers than the current R&D tax concession.”

“The new R&D tax credit will help small and large businesses to innovate, to become more productive and compete in a global economy, preserving and creating jobs for Australians.”

A key benefit of the new system is a 45% refundable credit for businesses earning less than $20 million.

This will allow companies in tax loss to receive a cash fund, effectively doubling the current base rate from 7.5 cents to 15 cents in the dollar.

But the system has been criticised by the opposition and industry groups.

Shadow Innovation Minister Sophie Mirabella says the legislation will not make it easier for businesses to claim back research and development costs.

“What [Labor] has repeatedly and cynically failed to mention is that it is so drastically restricting eligibility criteria that far fewer businesses and activities will actually qualify for assistance in the first instance,” she says.

“It argues that its changes will be revenue neutral, but everyone out there in the real world knows full well that this is a revenue-raising measure.”

The Australian Industry Group has requested that the Government provide it with information on the proposals and doesn’t believe the bill should be passed in its current form.

It states: “Business expenditure on R&D is fundamental to national efforts to raise productivity and international competitiveness.”

“On any measure, the tax incentive supporting business R&D is high quality public investment. The Bill should not be passed in its current form.”

“The Board of Taxation should examine the clear risk that the new proposals will unduly constrain legitimate business expenditure on R&D and consider alternative ways to address any misuse of the current tax arrangements.”

“Any changes that are warranted could be legislated in time for operation from July 1, 2011.”