CANBERRA: Australian government has decided to cap domestic research and development tax incentives to help drive the development of new technology in the country.
Australia’s Shadow Minister for Higher Education, Research, Innovation, and Industry Senator Kim Carr this week slammed the government’s move to put a cap on what companies can claim under the federal Research and Development (R&D) Tax Incentive. The R&D Tax Incentive allows companies to claim a tax break for the money they spend on internal R&D, but on February 10, parliament passed new legislation limiting the amount for which companies can claim R&D tax breaks to AU$100 million.
The federal government struck a deal with the Palmer United Party and independent Senator Nick Xenophon in a bid to see the new Tax Laws Amendment (Research and Development) Bill 2013 pass the Senate. The deal saw a number of amendments, including the reduction of the tax offset rate for companies with R&D expenditure above AU$100 million, and a move to backdate the new legislation to July 1 last year, leaving the laws to apply retrospectively. In a statement, Carr reiterated concerns that industry stakeholders had previously raised in submissions to the committee charged with inquiring into the legislation.
“Some of Australia’s biggest R&D investors, including companies such as Telstra and Caltex, made it clear that new R&D investments and the associated jobs could go offshore if the government’s measure was passed,” said Carr. “Universities like the University of New South Wales said their business research partnerships would be placed at risk if access to the R&D Tax Incentive was cut.”It will have the same disincentive on R&D investment as the original measure,” he said. “The only difference is that it will impact a different list of companies, with the added problem of retrospectivity.
“The “original measure” refers to the Bill as it was first introduced by the previous Labor government in 2013, when it passed through the lower house. The original proposal was to reduce the tax offset by 1.5 percent and remove R&D incentives for companies with a yearly turnover of more than AU$20 billion. Carr said that the original measure was intended to exclude only “very large” Australian companies from claiming the R&D Tax Incentive, and that the Bill, as it is now, “raises serious concerns about sovereign risk for innovative companies considering new R&D investment in Australia”.
Despite these concerns, however, there is a chance that the new legislation could in fact provide many of Australia’s technology industry players with a compelling incentive to ramp up their R&D activities. Treasurer Joe Hockey has said that he expects fewer than 25 companies in the country to be affected by the new measure, with the “vast majority” of companies claiming the R&D Tax Incentive remaining unaffected by the changes.”These changes represent a fair and sensible outcome, providing a concession for small and medium-sized companies, which are typically more responsive to tax incentives for innovation while at the same time ensuring that important savings in the [federal] Budget are realised,” said Hockey in a joint statement with Finance Minister Senator Mathias Cormann.
Chris Ridd, managing director for the Australian operations of cloud accounting software provider Xero, agrees with Hockey’s assertion that the new changes will likely see local small and medium-sized companies respond to the R&D Tax Incentive. In fact, Ridd believes that by restricting the amount that very large companies in Australia can claim as part of the scheme, smaller players may well ramp up their innovation activities in a bid to leverage the moderately flatter playing field that the new measures allow.”I think that what the government’s done with the capping is not a bad thing, because the bigger vendors, the big guys that are spending that sort of money on R&D, you’d argue that they don’t really need those sorts of R&D incentives,” Ridd told ZDNet. “Anything the government can do to encourage that low end is a good thing.”This is all about democratising IT,” he said. “You don’t want the masses of technology sitting with the few; the big guys. It’s actually good for the IT [industry] in terms of choice and competition to have small vendors coming through, and those tax incentives obviously encourage those smaller players to grow.”
Although Xero is headquartered in New Zealand, the company’s almost 200-strong Australian team includes an increasing number of engineers and developers working on several activities classed as R&D projects. While the Australian R&D Tax Incentive was not the primary impetus behind Xero’s move to build a large development team in Australia, it has encouraged the company to carry out more innovative work locally than it may have otherwise done.”We’re now at well over 50 developers in Melbourne, and our global development team is at around 400. That comes under R&D and innovation investment,” he said. “So, we definitely fall in that category,
“Australia has some of the best researchers, inventors, and entrepreneurs in the world,” he said at the time. “But our track record of turning great ideas into commercial products is not as good as it could be or as good as it should be if we are to keep pace in evolving global markets.”Accelerating Commercialisation will drive business growth and competitiveness and achieve nationwide economic benefits by helping to ensure that more of Australia’s wealth of intellectual property resource is effectively commercialised,” he said. According to Randall, the move to cap the R&D Tax Incentive could be viewed as an additional step the government has taken to help lower the barriers for smaller technology companies to generate returns from their R&D activities. “Smaller companies can get access to resources that traditionally only large organisations would have,” he said. “There’s a lot of democratisation of smaller companies in this move.”