AusBiotech has made a submission into a Senate Inquiry into the legislative Bill that includes the R&D Tax incentive (RDTI) reforms, urging the Inquiry to delay its passage until the impacts are better understood and can be mitigated.
AusBiotech welcomed the Senate Inquiry for the Bill seeking to seriously reduce the RDTI, after calling on the Government to delay the passage of the RDTI reform legislation until the details, mechanics and impacts are better understood and can be mitigated.
The legislation entered the Parliament recently in an inappropriately titled Bill: Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018.
Given the decline in Research and development in Australia (measured by GERD and BERD), AusBiotech is concerned that these ill-informed changes to the RDTI are being pushed through the Parliament without due consideration.
As the Australian representative body for one of Australia’s most innovative industries - the biotechnology or life sciences industry - AusBiotech is pleased to have the opportunity to comment, despite its disappointment and frustration that the RDTI is again under serious threat, and therefore so too is Australia’s competitive advantage in biotechnology and clinical trials (CTs).
The RDTI is the most critical programme in supporting the Government’s stated policy objective – to improve Australia’s performance when it comes to the commercialisation of medical research.
Despite the welcome protection of CTs in the RDTI reform package, hidden in the detail is a 2.5 percent loss of refund for SMEs in tax loss - a critical blow for start-up and spin-out companies commercialising medical research that has typically come from our medical research institutes and universities.
The Federal Government is claiming the changes are in response to the Review of the R&D Tax Incentive 2016 (Ferris, Finkel, Fraser), however this cut of benefit for SMEs did not form part of the review’s recommendations.
In addition to the new calculation method of the RDTI benefit, the life sciences sector is concerned about two further key issues:
- Larger companies in the sector are grappling with the impacts of a new intensity measure that will see a reduction in support for most, a significant layer of complexity and uncertainly about eligibility threshold until after R&D spend has been made, thereby eliminating the incentive component; and
- The mechanics of the ‘carve out’ for CTs has many unanswered questions.
AusBiotech urges that:
- The refundable benefit for companies in tax loss be kept at the current rate 43.5%. This can be achieved one of two ways. Either the move to de-link the 13.5 per cent benefit from corporate tax rate be abandoned OR the benefit go up when the corporate tax rate goes down;
- The mechanics of the CT exemption ought to be properly understood before it is implemented; and
- The intensity measure be opposed in the form suggested because it disadvantages all companies, but particularly those who are undertaking manufacturing in Australia, and ought not discourage CT activity. It does not achieve the intent of the initial Review’s recommendation, which was to reward companies that exceeded a minimum threshold for R&D. There are several options available:
- Abandon the intensity measure altogether;
- Adopt the Review’s proposal, which is far more workable;
- Develop a formula that exempts CTs and manufacturing expenditure from the formula.
The full submission can be found online.