R&D Rate reduction Bill update

Parliament has survived its first week back with a new speaker and a strong focus on the calls for marriage equality. In the background, the Senate has not considered the re-tabled proposal to reduce the R&D tax incentive benefit; a further cut to the program following the introduction of the $100 million expenditure cap. However, unlike the cap, this reduction will affect all R&D companies.

The re-tabling of this measure, which was previously rejected by the Senate, has an additional sting. The cut in the program will still reduce the net after-tax-benefit but, unlike the previous Bill, this reduction will be permanent.

As you will have known from our previous updates, MJA has been actively discussing these issues with Treasury, a number of the Senators and their advisors and we would like to thank everyone for being so generous with their time. This week we would like to thank the Offices of Senators Carr, Lambie, Lazarus, Madigan, Muir and Wang (in alphabetical order) for meeting with Ian Ross-Gowan. Our key message at these meetings was that given all of the changes to the R&D tax program of late (most recently the $100 million cap), R&D entities now need stability to allow them to plan and conduct R&D. The rate change is robbing Peter (encouragement to invest in creating our future) to pay Paul (a short term and short sighted fix to the Budget). The timing is poor because:

• the rate cut is retrospective. It applies for years commencing from 1 July 2014. Some businesses have already submitted their Income tax returns for that year. These businesses have been advised by the ATO to guess which rate will apply. If they get it wrong then an adjustment will be need to be made. As per our recent Update, we advise businesses to apply the rates as currently legislated – 45% and 40%.
  
  
• the importance of R&D has probably never been as high. We are at the end of the resources boom, there is a need to combat climate change and Australia’s manufacturing environment is in a state of flux compounded by the fact that large scale car manufacturing is about cease.

The recent Intergenerational report clearly identified the need for new technologies to create and drive our future. The R&D tax incentive is one of the most important of the few arrows in our quiver to achieve this end and MJA encourages the Parliament to consider this when they debate this Bill.