The fate of Federal Industry Minister Kim Carr’s new research and development tax credit system hangs in the balance, with the Government still encountering stiff opposition to the scheme with just one month until it is due to be in place.
The new R&D tax credit scheme replaced the current system of tax concessions for R&D. The Government says the scheme will double the rate of government support for R&D conducted by firms turning over less than $20 million from 7.5c in the dollar under the existing Tax Concession to 15c, and boost the level of assistance for larger companies from 7.5c to 10c.
However, a Senate Committee inquiry into the scheme held last week heard sustained criticism of the scheme from grant experts, who says the new scheme is too restrictive and complex.
Experts including Tracey Murray, R&D partner at accounting firm BD0, told the inquiry that modelling conducted by her firm involving its clients in the mining and manufacturing sectors would be particularly hard hit.
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“In the mining industry, 90% of our current claimants would have their R&D claim reduced under the R&D tax credit program by at least 80%, with 10% of claimants not being able to access the incentive at all.”
“When we modelled the manufacturing industry, the very industry that Australia is striving to increase productivity in, our modelling indicated a significant number of clients would have their access to the R&D program reduced by at least 65% in terms of value, with a number of well-known, world-leading companies unable to access the provisions at all because of the operation of the dominant purpose and the feedstock provisions.
Murray and a number of other R&D experts also questioned the complexity of the arrangements, which is likely to lead to an increased compliance burden for smaller companies.
“My concern is that the plethora of subjective terms within the legislation are going to dissuade SMEs from making a claim and actually act to reduce the vast majority of R&D claimants,” Murray told the inquiry.
The Senate Committee is due to report its findings on June 15, which leaves the Government with just a short time frame by which to push the legislation through the Senate.
With the Opposition likely to vote against the new scheme, Industry Minster Kim Carr will need to win the support of the Greens or Independent senators Steven Fielding and Nick Xenophon.
But while Carr has said the Government will consider further amendments to the scheme, he is stepping up his campaign to win support for the credit scheme.
This morning Carr released a statement pointing to a new report from KMPG, which says the introduction of the new tax credit scheme will boost the competitiveness of Australia’s R&D tax system compared to other developed nations.
But while Carr’s media release carries the bold title “R&D tax credit best in the world”, a closer examination of the KPMG report uncovers a different story.
While Australia did rank as having the best R&D tax incentives for companies that are purely focused on R&D, it rated fourth for companies in the manufacturing sector and sixth for companies in the corporate and IT sector.
Australia’s overall ranking was unchanged at fourth place, behind Mexico, Canada and the Netherlands. However, KPMG did say Australia’s tax index rating (which is based on a measure of corporate tax rates, labour costs and R&D incentives) did improve due to the R&D tax credit proposal.