Australian encryption hardware vendor, Senetas, is calling on its shareholders to personally lobby the government over its proposed research and development (R&D) tax incentive changes.
In a message to shareholders, Senetas chairman, Francis Galbally expressed concerns over the review of the current R&D tax incentive provisions being considered by the government, which could see a cap of $2 million in cash claims per year imposed on small businesses with annual turnovers of less than $20 million.
“Senetas is concerned about some of these recommended changes because they would negatively impact Australian innovation and even Senetas’ investment in R&D,” said Galbally in a statement to shareholders. “In sort, the impact of the recommended caps would likely ‘cap’ business investment in innovation – a self-defeating outcome.”
Senetas, which held its annual general meeting on 17 November, reported a $1.43 million increase on R&D spend during the financial year ending June, with R&D investment aggregating approximately 29 per cent of operating revenue.
The company, publicly listed on the Australian Securities Exchange (ASX), reported almost $2.1 million in income from the R&D tax incentive as it currently stands, and stressed in its latest full year financials that, like other organisations of its size, it could only receive the 45 per cent refundable tax offset rate while it maintains an annual turnover of less than $20 million.
However, Senatas is on the edge of this cut-off point, claiming revenues of $19.3 million for the financial year ending 2016, a 19 per cent increase on its revenue tally for the year ending 2015.
The company has previously urged the government to drop this recommendation to put this cap on its incentive regime, and has also called on the government to increase the current revenue threshold that distinguishes entitlement to refundable and non-refundable offsets, from $20 million to $50 million.
“The proposed changes will impact Senetas,” said Galbally. “In short, the proposed capping of the 45 per cent refundable R&D offset to $2 million per annum, is simply dumb.
“A company on the cusp of $20 million in annual revenue is typically at a critical stage of growth. Ensuring sufficient cash flow when a business may still be in a tax loss situation remains a key consideration.
“The recommended changes to the R&D Tax Incentive Program are short-sighted and contradictory in their intent and certainly poor in their proposed execution,” he said.
Galbally argued that Australia should be increasing, not reducing R&D tax benefit funding for business if it wants to remain competitive in the international economy, warning that the country would experience a worsening of the “brain drain” phenomenon is it goes ahead with its proposed changes to the R&D tax incentive regime.
“The reduction to the lower non-refundable rate of R&D benefit after breaching the revenue threshold is a further inhibitor to innovation investment and growth,” said Galbally.
“So, I ask you, our shareholders, to consider what I have said today and phone, email, or write to your local federal member of parliament expressing your concerns about the proposed changes to the R&D Tax Incentive Program,” he said.
Up until late October, the government was accepting submissions from industry stakeholders over the R&D tax offset incentive changes proposed by its review panel in April. It will release its final response to the review's recommendations in early 2017.