Plant & Equipment

Independent report endorses R&D Tax Credit scheme

Commenting on the Foundation?s report The BERD in the hand: Supporting business investment in research and development, Senator Kim Carr, the Federal Innovation Minister, said Australians can expect a boost in the number of high skill, high wage jobs to flow from the introduction of the R&D tax credit. 

?The report looks at the merits of the credit and confirms it is an improvement on the current R&D Tax Concession. It says the policy behind the credit is sound and urges its immediate introduction because further delays will have a negative impact on the R&D activities of small and medium sized firms,? Senator Carr said. ?The R&D tax credit is a key part of the Government?s overall innovation strategy and I am pleased this report strongly endorses its higher rates of support and the changes in the definition of eligible R&D.?
The author of the review, Dr Nicholas Gruen, the CEO of Lateral Economics, concluded that the Government?s proposed R&D regime is a major improvement on the old tax concession scheme because it is likely to boost R&D undertaken by small businesses.
?Assistance rates have fallen from 24.5 per cent to just 7.5 per cent since the scheme?s introduction in the mid-1980s,? explained Dr Gruen. ?Over nine tenths of the R&D qualifying for the current concession would have been done anyway. So the existing scheme probably generates more administrative, compliance and revenue costs than it does R&D benefits.
?By doubling the rate and bringing forward payments ? sometimes by years ? for small firms, the new scheme will generate substantially more additional R&D.?
Dr Gruen was also satisfied with the Government?s proposal to deal with the problem of excessive claims on production. The new scheme distinguishes production undertaken with the dominant purpose of supporting R&D (which remains eligible) from other production which is ineligible even if it has some correlation with R&D (which becomes ineligible). This distinction has been very unpopular with industry at large.
?This is much sounder policy,? Dr Gruen argued, ?because it ramps up assistance where we know it can generate more R&D. This is at the cost of assistance for production that isn?t being done for the dominant purpose of supporting R&D which would, pretty obviously, take place with or without assistance.?
Dr Gruen?s report has also proposed that the threshold for small firms be reviewed and indexed for inflation every three years and that tax confidentiality be waived to improve the evidence base for evaluating and optimising the R&D tax credit scheme over time.
The Bill to establish the credit will be debated in the Senate this month. Crossbench Senators have already pledged their support for the credit scheme and the Bill is very likely to pass.
For a copy of the Australian Business Foundation?s report, visit
For more information on the R&D tax credit, visit
Sources: Senator Kim Carr, Federal Minister for Innovation, Industry, Science and Research, Australian Business Foundation

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