• Miscellaneous - Federal Budget 2019

Further $1.35b cut to the R&D Tax Incentive

Although proposed amendments to the R&D Tax Incentive from 1 July 2018 have been put on hold, the Government has still significantly revised down the expected cost of the programme over the forward estimates. This is despite no new announcements in the 2019-20 Budget.

R&D - 2018-19 Budget Projections ($m)  
2018-19 2019-20 2020-21 2021-22 TOTAL
2,373 2,466 2,566 2,689 10,094
R&D - 2019-20 Budget Projections ($m)  
2018-19 2019-20 2020-21 2021-22 TOTAL
1,967 2,237 2,249 2,292 8,745
Change in projections from 2018-19 Budget to 2019-20 Budget ($m)
2018-19 2019-20 2020-21 2021-22 TOTAL
-406 -229 -317 -397 -1,349

The Government has stated that the reduction reflects a one-off adjustment recognising lower than estimated claims for prior years. 

BDO Comment

We consider that the revised forward estimates are a result of activity by the ATO and AusIndustry over the past 12-18 months, which has discouraged companies from accessing the R&D Tax Incentive. This is reflected in both a reduction in the number of claimants and size of claims. It also brings into question the Government’s argument that legislative change was required due to the cost of the programme blowing out.

It is unfortunate that such a vital incentive to assist technology development in the corporate sector has been adversely impacted by confusing guidance issued by the ATO and AusIndustry, coupled with an aggressive approach to programme administration that discourages companies on the forefront of new technology in Australia. At a time when Australia should be increasing corporate sector investment in R&D, Australia continues to languish compared to other developed and developing economies in terms of business investment in R&D. Whilst the Government purports to support innovation and business activity, the track record of programme administration brings that into question.

In a backdrop of other countries increasing or introducing significantly more favourable R&D tax regimes, it is not a surprise that Australian companies will continue to look offshore to undertake R&D activity.