James Thomson

Business groups are calling on the Federal Government to urgently clarify whether its controversial R&D tax credit scheme will come into force as planned on July 1, after the legislation backing the new scheme failed to pass the Senate last week.

But while the Australian Industry Group wants the Government to officially delay the implementation of the scheme until July 2011 and spend the next 12 months revising the scheme, Industry Minister Kim Carr says he is determined to press ahead with a July1 start-date, suggesting that he will introduce retrospective legislation when Parliament next sits.

The new R&D tax credit scheme, which will replace the current R&D tax concession scheme, was supposed to be debated and passed by the Senate late last week in order for the scheme to start as planned on July 1.

But the debate never occurred, leaving businesses in limbo.

In a short statement released yesterday, Carr laid the blame for the delay at the feet of the Coalition.

"The Opposition deliberately prolonged debate on other Senate business to prevent debate on the R&D legislation. It did this because it knew the Government was close to securing minor-party support for passing the legislation."

However, Australian Industry Group chief Heather Ridout praised the Opposition and Family First Senator Steve Fielding for standing against the changes.

The AIG argues the "draconian and ill-considered restrictions on eligibility" under the new scheme will reduce business innovation.

"Clearly the R&D tax incentive Bill didn't pass muster with its failure to pass through the Senate before the winter recess. The delay is a chance to get core concerns resolved and the sooner we start working through this the better."

However, the AIG and tax experts want clarification on what will happen in the short-term, given the next possible sitting of Parliament does not happen until late August, but could potentially be much later if an election is called.

Do the current rules stand for now? Or does Carr's promise to have the new system in place by July1 through retrospective legislation mean companies should make investment decisions based on the fact the new system could come into place?

Tracey Murray, partner at accounting firm BDO, is advising clients that they should take a "business as usual approach and follow the current scheme.

"We're advising clients that you deal with the legislation that is in front of you," she says.

Murray, whose analysis of the new credit scheme shows many firms who currently receive R&D support would be ineligible under the new arrangements, says the Government needs to take the year to get things right.

"There would complete public outcry if they introduced retrospective legislation. Hopefully the might take the next year to have a look at what those issues are and address them."

Tax counsel for the Institute of Chartered Accountants, Yasser El-Ansary, has written to the Treasurer and Industry Minister saying they have no choice but to put the new system off for a year and "accept that timing got away from them on this occasion".

"Given Parliament was not able to pass the legislation it would be sensible and appropriate for the Government to announce a one-year deferral of the regime," he says.

"These changes are so significant that it would not be appropriate for the Government to expect that taxpayers would assume that the draft is final law."

El-Ansary says such a big legislative change would usually involve government departments – in this case, Australian Industry Group – providing taxpayers with guidance notes and other information products explaining in detail how the new system works.

"They simply won't be able to issue that guidance when that legislation is still in a draft form before Parliament. This is not a minor change where businesses can operate on the basis of press release announcements."

SmartCompany has contacted the Minister's office to find out whether there is any official advice as to whether companies intending to undertake R&D in the next few months should do so on the basis of the current system or the proposed tax credit system.