R&D Tax Incentive Review: How can the program be improved?

R&D Tax Incentive Review: Program improvement

As part of the National Innovation and Science Agenda, the Government has initiated a Review of the R&D Tax Incentive (Review), to identify opportunities to improve the effectiveness and integrity of the R&D Tax Incentive, including by sharpening its focus on encouraging additional R&D expenditure.

Global Head R&D Tax Incentives

KPMG Australia


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The Review is seeking input on its Issues Paper released on 10 February 2016, due by 29 February 2016.

The Review considers the following key areas:

  • Rates and thresholds: the tax offset rates are intended to encourage R&D investment by lowering the price of R&D with a focus on helping smaller companies. Restrictions on the types of expenditure that may be claimed are contemplated by the Review.
  • Definition of eligible R&D: the definition is intended to filter ‘genuine’ R&D projects that are likely to deliver benefits to the broader Australian economy (spillovers).
  • Timing of administration: because companies register their R&D and claim the benefit after the decision to undertake the R&D project, the registration process may have a smaller impact on R&D project investment decisions and additionality than would otherwise be the case. Preregistration is contemplated as a method of increasing additionality.

It is clear that the Issues Paper is being considered with a backdrop of government fiscal restraint – so the emphasis is on cost containment rather than enhancement of the program. The Review has expressed concerns over the increasing cost to Government of the program and the cost of compliance incurred by claimants. Essentially, it is asking if there is a simpler way to encourage a culture of innovation so that Australia gets the best return for its constrained investment.

This is an unexpectedly comprehensive review paper of the whole R&D incentives regime and the timeframe for responses is short. So it's very important that businesses take the opportunity to respond to the consultation.

KPMG and clients have contributed to surveys and detailed submissions. It is pleasing to note that earlier stakeholder consultations are being considered by the Review.

We plan to provide specific feedback to the Review especially on the importance of creating business culture of embedding innovation as a driver for business productivity. KPMG would welcome suggestions from clients if they wish to have input into the Review without directly making submissions.

The Review is expected to report to Government in April 2016, which implies that the Government may choose to apply the more targeted incentives in this May’s Federal Budget.

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