Re:thinking the R&D Tax Incentive

Re:thinking the R&D Tax Incentive

On 30 March 2015, the Government released Re:think – a tax discussion paper on the Australian Tax System.

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Innovation policy played an important role in the discussion, which covered grant programs to assist businesses to collaborate with researchers, build management skills and undertake early stage commercialisation activities. A major component of the Government’s existing support for innovation is the R&D tax incentive, which is now in its third year (although a R&D tax benefit of some description has been in operation since 1986).

As such, the discussion paper seeks to review the operation of the R&D tax incentive with a focus on:

  • the effectiveness of existing tax incentives for innovation, industry-funded research and collaboration with public research institutions
  • review of the R&D tax incentive scheme in its first 3 years of operation
  • the possibility of alternative structures to better target assistance to industry.

The Government has posed the following question for discussion in their request for submissions:

Does the R&D tax incentive encourage companies to conduct R&D activities that would otherwise not be conducted in the absence of government support? Would alternative approaches better achieve this objective and, if so, how?

The coming discussion on innovation is likely to polarise into two opposing views:

  1. the current system, in keeping with international trends, encourages both a knowledge based economy and R&D, vital to economic growth and future tax revenues, that would not have otherwise been performed; or
  2. the R&D tax incentive is cumbersome in operation and poorly targeted, particularly with respect to industries like mining and software, that are sometimes accused of claiming large ‘Business As Usual’ projects which can act as a drain on public revenue streams.

KPMG will be preparing a submission on the importance of innovation. Contact your KPMG adviser to raise issues to be included in the submission.

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