AusBiotech: Scrap R&D Tax cap based on MYEFO

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News on the R&D Tax Incentive in yesterday's Mid-Year Economic and Fiscal Outlook with government officially deferring implementation of a legislated cut but still forecasting lower spending on the popular program.

According to AusBiotech CEO, Mr Glenn Cross, “Based on figures revealed in the mid-year forecast, the lower than expected growth in demand for the R&D Tax Incentive for 2015/16 is a signal that the case for the $2 million cap no longer exists.

“Certainly the urgency to tamper with the programme to contain costs has ceased and I urge the Federal Government to take this opportunity to respond with care for the preservation of clinical trials and STEM-based jobs.”

The proposed cap was one of several changes recommended as part of a recent review.

One of the key recommendations was the $2 million cap on the refundable component of the program, which the sector, led by AusBiotech, argues would significantly disadvantage a significant portion of small to medium enterprises.

“The Australian life sciences industry has grave concerns that the cap proposed in the ‘Finkel, Ferris, Fraser’ review will see a loss of life science jobs and direct investment, clinical trial losses and risk Australia’s global competitiveness,” said Mr Cross.

“Amongst the findings of a recent survey, 76 per cent of companies said the proposed $2 million cap on the R&D Tax Incentive would reduce their ability to employ staff and 100 per cent said the cap would impact their ability to compete globally.”

MYEFO also confirmed a decision to defer the start date of the already legislated cut in the rates of the refundable and non-refundable tax offsets.

Under the measure announced in the 2014-15 Budget, the rates of the refundable and non-refundable tax offsets for the first $100 million of eligible expenditure will be cut by 1.5 per cent.

The refundable rate will drop from 45 per cent to 43.5 per cent and the non-refundable rate will drop from 40 per cent to 38.5 per cent.

The $600 million savings measure was legislated in September this year. The Turnbull government effectively had no option but to officially defer the cut given its original implementation date was over two years ago.

The new implementation date of 1 July 2016 effectively confirms what was already known but officially delivers the sector $390 million over the forward estimates.

However, the budgetary impact of this delayed implementation has been more than offset by the 'parameter variation' that will see spending on the program $151 million lower than expected this year, adding up to $580 million over the four years to 2019-20.