Research & Development Tax Incentive Amendments 2018 Exposure Draft Law and Consultation Paper

26 July 2018

BDO welcomed the opportunity to provide feedback in response to the exposure draft legislation and consultation paper ‘Research & Development Tax Incentive Amendments’ released on 29 June 2018. 

These materials outlined key areas where the Federal Government requested specific feedback on the implementation of reforms to the Research and Development Tax Incentive to better target the program and improve its integrity and fiscal affordability in response to the recommendations of  the 2016 Review of the R&D Tax Incentive.

Our submission contains both our key concerns with the proposed new measures on industry and our responses to the questions in the consultation paper, on compliance challenges, integrity and unintended consequences with respect to the calculation of R&D intensity, the clinical trials exemption, and the draft feedstock and clawback provisions. 

Whilst the matters raised in the six questions in the consultation paper are important in the context of how the proposed new legislation will operate in practice, which we respond to in the appendix, BDO also took the opportunity to highlight some concerns with the proposed changes and provide some recommendations on how the legislation could be improved to achieve ‘the targeting’ aims. 

  • Remove the cap exemption for clinical trials - the current and previous tax incentives have been industry agnostic incentive programmes
  • Any claim with notional deductions that would provide an offset in excess of the cap should require an approved finding
  • Return the incentive component for the refundable tax offset to 15% as was originally introduced
  • Increase the turnover threshold to access the refundable offset to align with changes in corporate tax rate
  • Make the intensity test simpler and/or replace it with a simpler mechanism based upon increases in R&D spend. The current mechanism dis-incentivises businesses with high operational expenses such as agribusiness, resources and manufacturing to conduct R&D activity
  • The base incentive rate for companies able to access the non-refundable offset should be increased to at least 7% to be internationally competitive and to offset the costs of compliance. At 4% many companies will “opt out” of the system and/or choose to undertake R&D offshore
  • Companies should be able to ‘opt out’ of any intensity test and access the base incentive rate
  • Companies should be able to ‘opt out’ of applying the clawback and feedstock provisions by excluding the relevant expenditure.