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Concerns Over Consultation Process for R&D Tax Reform Bill

A reform bill proposing controversial changes to the R&D Tax Incentive for FY20 is currently being considered by the Senate.

This bill is a slightly modified version of a previous reform bill (Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018), which did not pass through the Senate last year. A Senate Economics Legislation Committee recommended in February 2019 that this bill should be deferred from consideration until further analysis of the bill’s impact is undertaken, particularly with respect to concerns around the proposed intensity threshold and refundable offset cap.

We note that federal treasurer Josh Frydenberg made the following comment to the Sydney Morning Herald in February 2019 following this outcome from the Senate Committee “The Senate Economics Committee report concluded that R&DTI reform is needed. We agree with the Committee’s recommendation that Treasury consider technical refinement to implementation” .

Reports have emerged this week from InnvovationAus that there has been no substantial consultation on the modified version of the bill, and that the government has not yet officially responded to its own Senate Committee report which recommended its original reforms be redrafted.

During the estimates hearing this week, opposition senators asked what consultation had been conducted last year on the new legislation, however department officials reportedly could only identify consultation undertaken on the original bill.

The department officials also confirmed the government is yet to officially respond to the Senate Committee report rejecting the original bill in Parliament, despite being required to do so.

“We worked closely with Treasury following the Senate inquiry. I’m not aware of a response to Parliament, but I understand the Treasurer made comments agreeing with the recommendations,” a department official reportedly told the estimates hearing.

Swanson Reed’s position on the current bill is that concerns will remain around the complexity of proposed changes, particularly with respect to the intensity threshold, as:

• A company’s rate of R&D Incentive becomes unclear at the time of an investment decision, given that “total business expenditure” cannot be clearly determined until after a company’s financial year end; and
• The intensity threshold may reduce the relative R&D Offset available to companies with high cost bases, such as those with local manufacturing operations.

It is also disappointing that the reintroduction of the reforms follow recent pleadings for stability to the R&D Tax Incentive by the business community, including leading Australian companies such as CSL, Cochlear, Atlassian and Dulux group.

The Senate Standing Committee on Economics will report back on the new RDTI bill by 30 April.

Source: Innovation Australia