Can Australia catch the innovation wave without R&D tax incentives?

Can we catch the innovation wave without incentives?

Paul Van Bergen, Partner in R&D Advisory, talks about investors investing risk capital in new and high tech enterprises to drive repeat sets of waves of innovation.

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KPMG Australia

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Breaking wave

One hundred years ago, Albert Einstein predicted the existence of gravitational waves. On 11 February 2016, the Advanced Laser Interferometer Gravitational-Wave Observatory (aLIGO) announced to the world that their detectors had finally confirmed their existence. An audio grab of black holes colliding echoed around the world. And the clarity of the sound was due, in part, to a collaboration with Australian scientists and data analysts who played an important role in eliminating the noise from the radio telescope data.

It’s the physics equivalent of a tax consultation paper becoming law.

Research and Development (R&D) tax incentives, together with breaks for speculative investors investing risk capital in new and high tech enterprises can drive repeat sets of waves of innovation delivering a higher standard of living for all Australians.

As announced by the Prime Minister in December 2015 under the National Science and Innovation Agenda, the government will soon complete its review of the Research & Development (R&D) tax incentive, angel and venture capital investment, and Early Stage Venture Capital Limited Partnerships. The reviews aims to “identify opportunities to improve the [incentive’s] effectiveness and integrity” and encourage “additional R&D expenditure”.

The review is significant in light of the government’s ‘ideas boom’. R&D tax incentives account for roughly 90 percent of the government’s support for innovation among Australian businesses and around 30 percent of the government’s total spend on science, research and innovation.

The review of the R&D tax incentive program, which is now in its fifth year, presents an interesting dilemma. The government wants to catch the innovation wave but needs to avoid ‘cutting in’ on innovative entrepreneurs who have subsidised their R&D through the R&D tax incentive. The prospect for change undermines stability, which is crucial for investment in innovation in the areas in which Australia excels – medical technology, agriculture, mining, which all have multi-year duration project cycles. It would do nothing for innovation if the R&D tax incentives are downgraded and innovative collaborative investors suffer from ‘tinker fatigue’.

Here’s hoping that the government errs on the side of investing in our future and we can all ride the innovation wave.

Surf's up!

Read the full KPMG Submission (PDF 217KB) to the government in response to their review.

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R&D Advisory

R&D Advisory

KPMG’s R&D Advisory group has experience in helping clients achieve tax savings from innovations in technology, processes, products and services.

At KPMG our understanding of tax governance, specialist skills and deep industry knowledge helps our clients with their tax responsibilities.

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