"Firestorm of criticism" against Government R&D changes

"Firestorm of criticism" against Government R&D changes

Sweeping changes to R&D tax concessions causes turmoil for ICT companies and lobby groups

Tax experts and IT lobby groups have expressed outrage over the Federal Government’s proposed changes to multi-billion dollar research and development tax concessions in Australia.

The Government released its new R&D tax incentive to public comment on December 18, 2009. Applications must be submitted by February 5 and the new rules will be introduced into parliament by early 2010.

Under the scheme, the definition of “research and development” has been tightened and all projects must involve both considerable novelty and high levels of technical risk. Software has been especially hard hit, with research into the integration of off-the-shelf commercial and open source software being refused concessions.

All developers must also make a direct commercial return from the software developed in order to qualify for funding. This could see open source software developers, or companies like banks that develop online facilities without charging customers a fee, missing out on dollars to cover costs.

R&D tax specialist and Michael Johnson Associates managing director, Kris Gale, labelled the proposed changes overreaching and restrictive.

“If these changes go through, this will be the worst environment for Government support for R&D in this country for the past 25 years,” he claimed. “The double whammy is a much tighter definition of what R&D is – whenever that R&D generates a commercial return, you are penalised and lose the credit completely.”

In a submission, the Australian Information Industry Association (AIIA) claimed parts of the proposed legislation “make a mockery out of the public policy debate” and would damage the IT sector’s innovation capabilities.

“The proposed amendments…will cause critical diminution in the level and quality of R&D carried out by Australia’s SMEs and others because it will be difficult or impossible to sustain the level of financial commitment necessary to support effective R&D,” the submission said.

“The paper claims in para [sic] 54 that subsidising innovation without high risk…does no more than reward a company for doing what is ‘already commercially sensible’. The logical corollary of this is that subsidising activities that display both elements, rewards companies for doing what is not commercially sensible.”

Gale hoped the Government’s proposal would be squashed due to mounting anger and scepticism from a range of businesses and organisations.

“I think across all these things – the restricted definition, the specific attack on software and the augmented feedstock rules – they all need to be pushed back or resisted really vigorously because they all set-up a program that doesn’t support commercial R&D,” he said. “It sets up a program that supports R&D that’s isolated and only able to be incentivised when it’s esoteric or fails.

“But there’s just such a coincidence of viewpoint among all the major players in terms of industry groups and taxpayer representative groups, and large companies and small companies, that you will see a firestorm of criticism emerge.”

According to Government data, 6806 companies conducted R&D worth $11.59 billion and received $610 million worth of tax concessions in 2007-2008. SMEs with up to 200 employees make up 88 per cent of registrations.

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Tags taxFerderal Governmentresearch and development tax concessions

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