Alan Garcia reflects on the Federal Budget's proposed reductions to the R&D Tax Incentive.
After three plus years of review, it came as no surprise that the Federal Budget proposed reductions to the Research and Development (R&D) Tax Incentive, Indeed, if the measures are passed unamended, the large majority of current R&D tax claimants will receive less funding.
The proposed measures are:
Ultimately the Federal Budget is focused on containing the cost of the R&D tax incentive by reducing the tax benefit for most companies and increasing compliance activities. To manage compliance more effectively, we strongly encourage claimants to introduce regular ‘R&D check-ins’ to marry your R&D activities throughout the year to the annual AusIndustry R&D registration. This should link the experimentation and new knowledge gained to the relevant costs incurred on a contemporaneous basis.
Whilst the proposed measures are expected to save more than $2 billion, the Government appears keen to take a more holistic perspective with regard to increasing business expenditure on R&D by reducing company tax rates, strengthening research funding (e.g. $500 million for the Medical Research Future Fund) and improving industry collaboration. The Government hopes that these broader measures will additionally support Australia's economic growth through innovation.
We expect draft R&D legislation to be released for consultation over the next month.