The Government has released its Consultation paper “The new research and development tax incentive”
Apart from the change to a tax credit system and the new benefit levels, many of the other key issues are presented as options of how the new program may approach different issues.
Of particular interest, and relatively more certain, is the stated intention of the Government to change the definition of R&D activities to require both innovation and high levels of technical risk. An identical change to the definition was proposed by the Federal Government in 2001, and later dropped after vigorous opposition from industry, and later the Federal Opposition and minor parties in the Senate.
In terms of the various options canvassed, perhaps the most concerning at this early stage is the proposal to limit the extent to which the costs of supporting R&D activities (i.e. those activities which are carried on for a purpose directly related to the carrying on of a "core" R&D activity involving innovation or high levels of technical risk) will be eligible for support under the new tax credit program. Several options are suggested including a "net-cost" approach which would potentially limit the amount claimable to the actual loss incurred in respect of a R&D project, a fixed limit on the degree of expenditure claimable in relation to supporting activities, and a plan to exclude dual-role or production activities for support under the program.
When combined with the proposed change to the definition, arbitrary limitations on supporting activities would dramatically reduce the net benefits available to individual firms via the R&D tax credit program. With this in mind, BSI will monitor the discussion of these issues closely, and where these proposals appear likely to remain unamended, strongly oppose such changes during the consultation and draft program legislation process.
We will be attending the Industry Consultation in Canberra on Monday, 28 September 2009 and will provide a more detailed briefing after that meeting. A further consultation is also scheduled for Sydney on 19 October 2009, which BSI will also be attending.
The Government has set a deadline of 26 October to make submissions regarding the program.