Innovation and start-ups will be adversely impacted by review of the R&D tax incentive scheme says BDO

29 September 2016

R&D tax experts, BDO Australia, stated its position today on the six recommendations outlined by the Federal Government in its Review of the Research & Development Tax Incentive document aimed at improving the performance of the R&D programme and enabling its long-term continuation.

Set against the backdrop of the recent reduction of 1.5% to the R&D offsets, BDO predicted that industries that are expensive to enter such as Biotech and mining start-ups are most likely to be adversely affected by the proposed $2 million cap on the annual cash refund; should these most recent R&D recommendations be implemented. 

BDO Australia’s R&D tax partner, Nicola Purser, commented that whilst BDO generally agreed with the recommendations contained in the report, the “constant tinkering” to the R&D tax incentive program was not helpful for research and development programs which are generally long-term undertakings by a company.  BDO raised a couple of points that require further consideration and debate … 

“Providing extra incentives for businesses to hire PhD graduates and to collaborate with Australia’s world class research institutions is great in practice but in reality…

“The fact that they’re proposing to limit the introduction of a collaboration premium of up to 20% for the non-refundable tax offset [so as to provide additional support for the collaborative element of expenditure undertaken with publicly funded research organisations – refer Recommendation 2] plays to the strengths of the larger end of town with turnovers of over $20 million.  We believe it should be opened to all, including SME’s.  While the Panel has mentioned that the reason is that SME’s receive a refundable benefit (i.e. cash back), they have failed to recognise that this is purely a cash flow benefit. Due to the way that the programme interacts with the franking system there is currently no permanent benefit for successful SME’s in claiming R&D” said Ms Purser.

On the upside, BDO welcomed the increase to the R&D intensity threshold to $200 million so that large R&D-intensive companies retain an incentive to increase research and development in Australia however they did not believe that this issue should be linked to Recommendation 4 (the introduction of intensity threshold of 1 to 2%).

BDO acknowledged that it was reassuring that the Turnbull government had reopened the debate on the R&D Tax Incentive scheme and was taking consultation from the industry. 

In respect to the proposed administrative changes, BDO’s R&D tax partner, Nicola Purser, commented further.

“Processes can always be improved and BDO would support further streamlining.  Other countries do run similar programs through a single agency very successfully.  Specialist knowledge would need to be retained however and this could be achieved by merging parts of ATO and AusIndustry.

“We do not agree however with publishing company lists and refund amounts received, the increased administration would outweigh the transparency benefits and we believe that, without context, the average person would not understand the quantum of the refund received for R&D projects and that the increased intellectual property concerns that would be raised might discourage some people from accessing the R&D program.”

BDO will provide a full response by the 28 October deadline.