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(David Wilson) So, in this first session, our program
overview, I’m going to just spend a few minutes to talk
about the Incentive. What it is, why should companies
invest in R&D, and what are the benefits of the program.
I appreciate that there’s many of you in
the audience familiar with and indeed
are users of the R&D Tax Concession program.
Equally, I think there are many of you in
the audience and some that I know are very
familiar with the R&D Tax Incentive, or the
Credit as it was known up to very recently.
For others but, and there may be a number who know very little
about the program, I hope todays presentation is going to give
you a good overview of what the program’s about, its features
and some of the details around the eligibility for the program.
And hopefully, as I say a good introduction of what it’s all
about and where you can go and get more information and support.
So what is the R&D Tax Incentive? Well, likes its predecessor
it’s a broad based, market driven entitlement program
and it’s opened to all industry sectors.
The program is aimed at encouraging more businesses to carry out R&D.
And in particular, an importantly R&D that otherwise would
not have been undertaken, in particular given costs
associated with R&D and the risks, the uncertainty of
what the outcomes and the benefits are to the firm.
The program’s a major pillar of the Australian Governments
innovation agenda, Powering Ideas, which was realised
in 2009 and indeed the project was announced in the May
2009 budget to replace the R&D Tax Concession program.
The new program, in particular, has raked much more generous
support as an incentive for firms to undertake R&D,
especially SMEs where the benefit is in fact double the existing
under the R&D Tax Concession. I’ll come back to that in a minute.
Clearly the Government and us entrusted in the Department of Innovation as
well as our colleagues at ATO are all about trying to get as many firms
as we can who are undertaking R&D to access the program,
and particularly firms who may not have
considered accessing the program in the past.
Those who are maybe doing R&D and weren’t aware of it, or thought
it was too hard to apply, or weren’t quite sure what the rules.
Or those that have got the potential and perhaps could and should
be doing R&D as part of their innovation program in their company.
So why should companies do R&D?
I mentioned that the programs objective is to encourage
R&D, but really, why should companies invest in R&D?
Well, R&D is recognised as a critical
driver of innovation. There’s extensive
evidence worldwide to support this statement that firms that do undertake
R&D and are innovative in their practices
are going to be more successful,
more productive and competitive in the global market place in particular.
Clearly, R&D isn’t innovation,
but R&D is a critical part of the innovation system.
And a critical driver for innovation undertaken
by firms and particularly in the private sector.
As I mentioned firms that innovate do have a greater potential to grow and
be competitive and that’s both
domestically as well as internationally.
R&D is of course a great way of building
skills in firms and that knowledge,
discovery and those type of skills and knowledge that flows to other
parts of a business, clearly it also flows onto collaborators and other
companies that companies interact with in the supply chains, etcetera.
So, I’ll just spend a couple of minutes now just going over
the main benefits of the R&D Tax Incentive.
Clearly, first and foremost the more generous assistance that’s
provided under this program as compared to the R&D Tax Concession.
For firms with an aggregated turnover of less
than $20 million the assistance is double
what was available under the old program.
It goes from 7.5 cents to 15 cents in the dollar.
Importantly for firms that are in cash loss or in tax loss,
that can be a refundable tax offset and
that’s very important for firms that
maybe very much intensive R&D investment and cash flow is very
critical at that point in time in their innovation cycle.
That disincentive of uncertain in terms
of the cost of investing in R&D and
the uncertain return is very much a key
part of where the incentive is really
trying to target that activity that may
have been not undertaken or stopped
before it went any further, because of those risks and costs involved.
The other element of the program is the
40% non-refundable tax offset for all other
firms greater than $20 million turnover
and this is a third greater than what
it was under the Tax Concession.
There’s certainly great potential here for the
bigger firms, for medium and large firms
to do more R&D and get more benefit.
The important part and change from the Concession to the Incentive
is that the offsets are no longer coupled to the corporate tax rate.
And in many ways a key benefit here is that that predictability
in terms of allowing firms to plan their R&D investment with
the certainty that the rates are not going to change, if indeed
there was fluctuations or changes in the cooperate tax rate.
Another element of that type of
certainty that the program is aiming to
provide to firms is the introduction of an advance finding function.
These advance findings can be a means that provide certainty
for firms about the R&D that they’re undertaking,
around certainty about their eligibility of that R&D in the program
and that benefit then of being able to use that certainty to
either one, plan with certainty around how they’re going to
undertake their activities for the year, two or three years ahead.
Importantly for, in particular in many small
firms, albeit also medium and large firms,
being able to use that with confidence as
well as being able to use it to ensure
investment in the firm, whether that’s
externally and seeking that external investment
knowing what the offset that the company is
going to receive as part of the program.
For some firms, internally that maybe internally the
competition between the visions, whether they’re locally or
part of a global corporate, where the visions undertaking
R&D here in Australia are competing against some of their
other colleagues for R&D investment from the firm
and an advance finding can be a way of providing that certainty
and bolstering their proposition to those who are making
the decisions on where the investment’s going to be made.
Some of the other features of the program is that
a key change with the R&D Tax Incentive from the
R&D Tax Concession is allowing foreign companies
with an offshore IP to access to the program.
R&D increasingly is a global activity and a global
commodity and competition for where R&D is conducted
is increasing. As an aside there’s over 40 countries
worldwide that have R&D Tax Incentive programs,
so we’re not alone on that and we’re not
alone in trying to get R&D conducted
here in Australia, in our Nation as compared to being conducted elsewhere.
We have a, certainly in this country, an extremely strong
public sector research capacity that has a great flow on to
the private sector and those benefits of doing that R&D in
Australia has great benefits in terms of the spill overs,
that’s the technology transfer, the knowledge transfer and the jobs
that can be created by the R&D being done – carried out in Australia.
The program, as its predecessor the R&D Tax Concession,
also recognises that Australia doesn’t
have all the expertise or the facilities or the
resources to undertake R&D here in Australia.
Importantly, compared to the Tax Concession program,
under the R&D Tax Incentive some of the conditions
around how much of the R&D project can be undertaken
overseas has been increased from the cap,
at the moment is 10 %, it can now be up to in effect 50%
of the project expenditure can be conducted overseas.
But that’s a significant change in recognition that many R&D projects,
of course, are part of larger
collaborations that are global in nature.
The program, just at the Tax Concession
had a function called the Registered Research Agencies,
and some of you maybe in the audience today
are RAAs, or know of RAAs, or use RAAs.
They’re going to be called Research Service
Providers (RSPs) under the new program.
Some of the eligibility criteria and the types of RSPs are slightly
different to the RAAs, but in general it’s basically the same
concept of that firms who don’t have that capacity in-house, the
expertise or facilities to undertake research can contract to RSPs.
Importantly, the $20,000 minimum threshold
for notional deductions under the program
a company must undertake to access the offset is waived if they use an RSP.
Just briefly, a couple of other benefits for the
program is a doubling of the cap
of the limit of the beneficial ownership by tax exempt entities.
Under the Tax Concession this was 25 %; it’s now up to 50 %.
There’s also, for firms that are owned 50 % or more by a
university they can access the 40 % non-refundable offset.
And, just as with RSPs, for firms who are
contributing to a Cooperative Research Centre, a CRC,
there are some changed conditions on how they can claim their offset,
importantly, the $20,000 notional deduction
is waived for contributions to CRCs.
A final feature that I’ll just talk briefly about.
Is that on the 15th of June the Government announced that a quarterly
payment will be introduced for the program from 1 January 2014.
This is designed to assist cash flow for companies when
they need it most and particularly those that are in
tax loss and they can access the quarterly cash payments
in arrears. The details are yet to be finalised.
That’s a fairly brief and top level overview of the program.
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