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Proposed changes to the R&D Tax Incentive – a grab for cash disguised as restoring integrity? Friday 6 Apr 2018

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Treasurer Morrison alluded to two specific measures that were under consideration (read: locked in), being a reduction in the maximum annual limit on refunds claimed by smaller entities under the program (limited to $4 million p.a., with a lifetime cap of $40 million) and the introduction of an intensity test of at least 1% of annual expenditure before a company can access the program.

In support of the proposed intensity test, Treasurer Morrison noted widespread ‘rorting’ of the program had led to many companies claiming ‘business as usual activities’, and the introduction of an ‘intensity test’ would ensure that R&D that was going to happen anyway would not be rewarded, instead focusing the benefits of the program where there had been an intensity of R&D effort.

Treasurer Morrison’s proposed ‘intensity’ test has the potential to deprive many Australian companies engaged in cutting edge innovation of any Government support for their R&D activities. These same companies are often best placed to extract the benefits from their R&D efforts, for the benefit of their industry, and the Australian economy.

This latest announcement is likely to make many mature innovators consider their options when it comes to developing and commercialising R&D, with countries such as the UK and Ireland (both of which have predictable and stable R&D incentives, and patent box regimes) the likely beneficiary.

While Glasshouse Advisory welcomes the Federal Government’s genuine efforts to ensure the integrity of its R&D tax program, the proposed integrity test will do little to address any of the concerns raised by Mr Morrison, and has the potential to drive innovation offshore.

In the lead up to the May budget, we will be working with our clients and relevant stakeholders to challenge the introduction of a proposed intensity test, in the hope that what is an obvious ‘grab for cash’ can be redressed before Australia’s reputation for innovation is further damaged.

You can be part of this discussion by contacting your Glasshouse Advisory expert, or alternatively by using our contact form here.

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