Research Australia calls on Senate to scrap R&D tax changes

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Research Australia says it opposes several of the changes included in the Bill that will reform the R&D Tax Incentive (RDTI) program.

Research Australia is a member-based organisation that advocates in support of health and medical research. Its members include Medicines Australia and a range of research-based pharmaceutical companies.

The organisation has released its submission to the Senate inquiry into the Bill: Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018.

The new calculation method for the RDTI benefit will see start-up biotechs with turnover under $20 million and in tax loss lose a portion of their cash refund. Eligible expenditure, previously resulting in a 43.5 per cent claim, will now only be eligible for a 41 per cent refund.

For each $1 million of expenditure, the loss will be $25,000, with additional concerns over the $4 million annual cap on cash claims under the program and the new intensity measure.

Research Australia raises questions over the reform's objective. 

"A stated objective of the current Bill is to reduce the total level of government expenditure through the R&DTI Scheme," it says.

However, according to the organisation, "The latest figures published by the Department of Industry, Innovation and Science estimate the actual cost in 2017/18 at $2.832 billion, some $600 million lower than the forecast in the Review’s report, and $100 million lower than its estimate for 2015-16.

"Research Australia submits that with expenditure on the R&DTI Scheme failing to meet the earlier projections which precipitated concerns about the escalating cost of the scheme, much of the rationale for the amendments contained in the Bill is no longer valid."

It continues, "Research Australia is concerned that the proposed reductions in the R&DTI are being undertaken without assessing the impact the R&DTI has had on R&D activity in Australia since its inception in 2011. Nor has there been an assessment of the impact of the subsequent reductions in the R&DTI offset rate."

On the reduced RDTI benefit, it describes the reasoning for the change as "fundamentally flawed"

" assumes that the companies receiving the refundable R&DTI are paying sufficient income tax to receive the benefit of the reduction in the tax rate. This is clearly not the case for the small research-intensive companies in the startup phase that are undertaking R&D activity to commercialise their prototype product; many of these companies are paying little or no income tax because they are operating at a loss for many years while they are in the process of developing products for market."

It calls on the Senate to reject the reduction in RDTI benefit.

It also argues the Senate should reject the $4 million annual cap on benefit claim in the "absence of information about the effects of the reduction."

The reform proposes an exemption for clinical trials from the $4 million annual cap but Research Australia says there needs to be a "definition" of ‘clinical trial’.

It also opposes the intensity cap, which will see a reduction in support under the RDTI program for most larger companies, because "it could have the unintended consequence of discouraging non R&D business investment in Australia."