Australia urgently needs to change its research and development tax practices to stay globally competitive, warns Deloitte R&D tax partner, Serg Duchini.
Duchini says that while the Government’s review of the national innovation system was welcome, other countries have leapt ahead.
He says the current R&D tax concession is almost 22 years old. “Although recent amendments have broadened its impact, there is still scope to improve its effectiveness.
“If we don’t have policies in place to position us competitively in the global R&D marketplace, then Australia risks investment dollars going overseas.
He says Deloitte has reviewed the R&D tax concession policies of 37 companies and there are many alternative systems from which to take ideas. New Zealand for example last year picked the eyes out of the Canadian regime, recognised as the best in the world, added some policies from Britain to create a suite of incentives that make the country very competitive.
“As well as assessing whether the current rate is adequate to support corporate R&D, some alternatives should be considered, he says.
- Providing tax credits for eligible expenditure compared to increasing the currently available tax deduction.
- Providing R&D benefits that do not adversely affect the franking account balances of Australian corporates.
- Providing a volume-based R&D concession compared to the current hybrid (incremental and volume based) benefit.
- Providing a solely incremental-based concession.
- Assessing and broadening the current legal structures that enable access to the concession.
- Assessing the effectiveness, in an increasingly competitive global market place, of current location rules that require eligible R&D activities to be conducted within Australia or an external territory.
- Assessing the effectiveness of the current intellectual property (IP) requirements for Australian R&D that require the IP to be effectively owned by the Australian corporate in order to access the 125% R&D concession.
- Providing greater clarity for Australian corporates undertaking R&D on a contracted or collaborative basis.
- Improving the support for small business by reviewing current turnover and thresholds limits.
- Providing more focused concessions for activities of national or global interest, for example alternative energy and greenhouse reduction technologies.
- Simplification both in terms of administration of the tax concession and the calculation of entitlements, particularly in larger Australian corporate groups.