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Amendments to R&D tax credit not enough, say experts

The Government tabled the bill in October but needed the support of independent MPs to pass it in the House of Representatives.

Under the amendments, activities during the development phase that are used to acquire new knowledge in the form of improved materials or services will be eligible as R&D. Further, experimental activities can be classed as R&D and ?factory floor R&D? will be included in the tax credit.

Taxation experts have said that while these changes provide clarification to businesses, the bill should be delayed until 1 July, 2011 (the legislation will retrospectively cover expenditure from 1 July, 2010 onwards) and business concerns about the dominant purpose test are still unresolved.

The dominant purpose test states that companies claiming on ?supporting? R&D must prove that the research is for the dominant purpose of supporting ?core? R&D.

KPMG lead partner David Gelb said that the industry has urged the Government to consider alternatives to the dominant purpose test. ?Until that issue is addressed, industry will not be convinced that the benefits of an R&D credit or higher rates are adequate.?

Federal Innovation Minister Kim Carr has declared that the Government will assess the dominant purpose test when the R&D tax credit is reviewed in three years. The Government will also establish a panel of R&D tax credit users to advise the Department on ?unforeseen consequences? of the tax credit.

Source: Smart Company

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