10 June 2015
Companies complain about 'sneaky' $800 million cut to R&D tax break
The Abbott government, which cancelled a company tax cut in the budget, is pushing ahead with $810 million reduction in tax breaks for research and development, in a decision biotechnology company CSL criticised as retrograde.
The R&D tax offset was due to be decreased by 1.5 percentage points in line with the government's plan to drop the company tax rate by the same amount. It was accepted by industry as maintaining the status quo.
Now, the government says only small businesses will have their tax rate cut from 30 per cent to 28.5 per cent, but the R&D tax offset will still be reduced by 1.5 percentage points for all businesses.
The government wants to cut the refundable tax offset from 45 per cent to 43.5 per cent and the non-refundable tax offset from 40 per cent to 38.5 per cent for the first $100 million of eligible expenditure.
The legislation was introduced to Federal Parliament in late May by Assistant Treasurer Josh Frydenberg, who said $810 million in savings over the next four years would "contribute significantly to the government's task of repairing the budget".
Swanson Reed tax principal Damian Smyth said the government was pursuing "sneaky" tax increases.
"The legislation from last year's budget was introduced on the basis that there would be a uniform reduction in the corporate rate to 28.5 per cent," he said.
"The corporate tax rate reduction is now only proposed to apply to very small companies with turnover less than $2 million. This means companies with turnover greater than $2 million will be subject to a drop in the value of their R&D claims.
"This is a sneaky cut and any sort of tinkering is going to reduce the willingness of companies to invest in Australia."
CSL has complained about the change too. The company wants a discount tax rate paid by advanced manufacturers of 10 per cent on new investment, which it said would "yield substantial growth and high wage employment".
The R&D tax offset reduction is in addition to tighter access to tax breaks for companies which spend more than $100 million.
"The rate reductions and cap are themselves unfortunate, but so too are the continual changes in R&D support arrangements, which increase the risk of long-term investment in R&D," CSL said.
"In CSL's view, these are retrograde measures. They make Australia a less attractive location for R&D and, because R&D is an essential complement to advanced manufacturing, detract from rather than enhance the prospects for advanced manufacturing in Australia."
Rather, Australia should try to compete with other countries by introducing a special 10 per cent tax rate for advanced manufacturers.
"CSL believes that an advanced manufacturing tax incentive will deliver significant benefits to the Australian economy. In CSL's view, it represents the single-most important step towards improving Australia's poor record of commercialising its high-quality R&D base."
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