Ai Group to oppose potential R&D cutbacks for big companies

Reports continue that the business tax working group is looking into cutting research and development tax concessions for big companies to help pay for the introduction of a loss carryback scheme.

But Ai Group has warned that it would strongly oppose any such proposal.

“Industrial R&D is a cornerstone of domestic innovation on which a very large proportion of productivity improvement hinges,” Ai Group says.

According to The Australian, the working group is tipped to recommend changes to R&D tax breaks for large companies, and the phasing out of accelerated depreciation for the mining, oil and gas and aviation industries.

It might also recommend that the Government allow businesses to carry back losses for two or three years, with losses capped at $1 million.

This follows comments from a working group member on slicing the 40% rebate on R&D spending for companies with more than $20 million in annual turnover.

“For very large companies, the argument goes, it doesn’t drive R&D because they’ll do it anyway,” the anonymous member reportedly said.

A loss carryback scheme allows loss-making companies to claim back tax paid on the prior year’s taxable income. The scheme is targeted at start-ups and businesses suffering difficult times, and is expected to be introduced in the May federal budget, funded by savings identified by the business tax working group.

CPA Australia head of business and investment policy Paul Drum says the $1 million cap sounds affordable to the budget, and could lead to an shift in economic fortunes from one company to another.

“There might be tears, and some might be smiling,” Drum says.

He adds that while CPA Australia supports the establishment of a loss carryback scheme, it believes that R&D has been whittled back in recent times, and there are better ways to fund its introduction.

Ai Group chief executive Heather Ridout added that “at a time when so much attention is on the need to raise productivity to offset the pressures of the high dollar, high energy prices and growing labour market inflexibilities, it does not make sense to encourage a wind back of business R&D.”

“As well, we have just introduced a new scheme after a particularly long and fraught gestation period.”

“We have become productivity laggards – why would we cut this enabler?”

The Institute of Chartered Accountants wrote to Prime Minister Julia Gillard last week, calling for the working group to be given time to consider its proposals, including the loss carryback scheme.

“Reforms that limit access to a loss carry-back regime to only corporations would not deliver the broad objectives the government is looking for,” it said.

“Ensuring those objectives can be met will require consideration as to how a loss carry-back regime could apply to the 80% of small businesses that are structured as partnerships, sole trader and trusts.”