Accountant groups wary of winding back R&D tax cuts to pay for loss carryback scheme

Accounting groups have questioned the merits of slicing large firms’ access to tax breaks for research and development to pay for the establishment of a loss carryback scheme for small business.

According to the Sydney Morning Herald, the business tax working group – tasked with finding savings to help pay for the introduction of a loss carryback scheme – is considering slicing the 40% rebate on R&D spending for companies with more than $20 million in annual turnover.

A source on the business tax working group told the paper that “for very large companies, the argument goes, it doesn’t drive R&D because they’ll do it anyway.”

A loss carryback scheme allows loss-making companies to claim back tax paid on the prior year’s taxable income. It was recommended by the Henry Tax Review and is expected to be introduced at the May budget, funded by savings identified by the business tax working group.

The scheme is targeted at start-ups and businesses suffering difficult times.

Paul Drum, CPA Australia head of business and investment policy, says it’s difficult to estimate how much a loss carryback scheme will cost without knowing its parameters, but suggests it might be in the tune of a couple of billion dollars per annum.

Drum is cautious on the reported plan. He says although the business tax working group should be considering all of its options, further cuts on R&D risks sending Australia in the wrong direction.

“We have concerns about whether R&D spend in Australia is sufficient,” Drum says, noting R&D has already faced “significant” cuts over the past few years.

“Part of the recipe of success for the future is Australia being at the forefront of innovation.”

“If we’re going to be adjust and be competitive in the Asian century, we should be encouraging R&D.”

CPA Australia’s submission for funding a loss carryback scheme includes expanding “black hole” expenditure timeframes and winding back accelerated depreciation rules, though not for agriculture.

In his economic note yesterday, Federal Treasurer Wayne Swan flagged “substantial” savings in the May budget, to reach the Government’s commitment to returning the budget to surplus in 2012-13.

Other possible ways to help pay for the introduction of a loss carryback scheme are slicing tax breaks for borrowing by local subsidiaries of multinational companies, or cutting depreciation allowances for the oil and gas industry, the report says.


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