R&D tax credit scheme delayed again as critics call for changes

Critics of Industry Minister Kim Carr’s R&D tax credit scheme have called for the Government to submit the bill to another review, after the Government conceded it will have to wait until early 2011 to get the bill through the Senate.

An angry Carr accused the Coalition of using obstructionist tactics to prevent the bill’s passage through the Senate, and claimed that R&D would be “stymied” and job creation opportunities would be lost.

“The Coalition’s deliberate filibustering in the Senate has once again deprived thousands of businesses of vital funds to help turn good ideas into commercial reality,” he said in a statement.

But Opposition Industry spokesperson Sophie Mirabella countered by saying the Coalition has always wanted to have the Senate debate, and that the Government prevented a resolution by dropping the R&D Bill from the schedule and prioritising a succession of other items of legislation instead.

The bill will now not be voted on until at least February 2011. The tax credit scheme, which will replace the current R&D tax concession scheme, was first proposed in May 2009, but initial criticism of the bill meant it did not pass prior to the August Federal Election.

Carr was then forced to deal with the six independent MPs to get the bill through the lower house, but this did not happen until earlier this week. And with the Senate focused on debate on the crucial NBN bill, time simply ran out for Carr’s plan.

Carr’s plan to give the new scheme a retrospective start date of July 1, 2010, also looks in doubt.

But not everyone is unhappy with the delay.

The Australian Industry Group, which has continually criticised the legislation, says the delay now gives the Government the chance to refer the bill to the Board of Taxation for review.

AIG chief Heather Ridout says her members remain concerned that the criteria for R&D activity that is eligible under the R&D tax credit rules is too restrictive and too complex.

Experts including PwC partner Sandra Mason are particularly critical of the “dominant purpose” test, which says companies must be able to prove that R&D they undertake is for the dominant purpose of pure research and development, and not to improve existing products for commercial purposes.

While Carr says this will ensure that taxpayer funds flow to real R&D rather than business-as-usual R&D, and ensure smaller companies get a fairer share of the funding pie, Mason and the AIG say the new rules will disadvantage companies that are involved in the sort of everyday, operational innovation that is crucial to growth.

“The overwhelming feedback from our members across a range of industries is that the Government’s proposals will impose undue restrictions on eligibility for the tax incentive,” Ridout says.

As well as the criticising the dominant purpose test, Ridou has also lashed what she calls “complex” feedstock rules and the unfair treatment of R&D undertaken by the construction industry.

“If Australia wants to be a country that makes things we need to have an R&D regime which is effective in supporting manufacturing. Business expenditure on R&D is fundamental to national efforts to raise productivity and international competiveness. On any measure the tax incentive supporting business R&D is high quality public investment.”

Ridout says the new laws could in place by July 1, 2011 if the Government calls for a Board of Taxation review now.