[LINK] New R&D tax incentives roll back the clock

[Philip Argy]

This missive from a member of the AIIA merits broader dissemination.

 

Philip

 

The draft R&D Tax legislation has been released by Treasury -
http://www.treasury.gov.au/contentitem.asp?NavId=037
<http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1702>
&ContentID=1702. Seems like they were not interested in communicating that
to companies that made a submission as nothing has turned up. It is worse
than I thought it could have been. We really need to communicate this and
make sure that other companies and organisations are aware of the issues.

 

There are many areas which are just absurd but how this supports the NBN and
making Australia an innovative country is beyond me. It smacks of a Treasury
that does not understand the ICT sector and is trying to save a few dollars
even though we were told this was to be cost neutral and that the budget for
R&D would not change. 

 

Treasury has released draft legislation amending the current law relating to
tax concessions for R&D activities  in Australia.  AIIA has argued strongly
against these proposed changes to the current regime, on the basis that they
will diminish support for SMEs involved in R&D activity.  Both industry and
the professional advising community also opposed the changes, but Treasury
appears to have ignored most of those concerns.   In short;

 

 


New law

Current law


A distinction is made between core R&D activities and supporting R&D
activities.

A distinction is made between core R&D activities (without that term being
used) and supporting R&D activities (termed directly related activities).


Core R&D activities must involve considerable novelty and high levels of
technical risk.

Core R&D activities must involve innovation (defined as an appreciable
degree of novelty) or high levels of technical risk.


Supporting R&D activities must be undertaken for the dominant purpose of
supporting core R&D activities.

Supporting R&D must be carried on for a purpose directly related to the
carrying on of core R&D activities.


Listed activities are specifically excluded from being R&D activities
(either core or supporting).

Listed activities are specifically excluded from being core R&D activities.


In-house software is excluded from being an R&D activity by a requirement
that software development activities be for the purpose of making a
commercial return directly from supply to at least two other entities.  

In-house software is excluded from being a core R&D activity by a
requirement that software development activities be for the purpose of
supply to at least two other entities.


Software services other than software development are explicitly excluded
from being R&D activities.  

Software services other than software development are not explicitly
excluded from being R&D activities.


Integrating off-the-shelf computer software is explicitly excluded from
being an R&D activity.

Integrating off-the-shelf computer software is not explicitly excluded from
being an R&D activity.  


Where R&D activities directly produce outputs, a feedstock adjustment
applies to reflect the extent to which the value of those direct outputs
offsets the cost of the related R&D activities.  Certain R&D activities are
quarantined from this adjustment.  

Where goods or materials are produced or acquired in order to be the subject
of processing or transformation in R&D activities, a feedstock adjustment
applies to reflect the extent to which the value of the outputs from the
processing or transformation offsets the cost of the goods or materials.  

 


R&D activities are now defined as either 'core' or 'supporting'


Core R&D activities are experimental activities that are systematic and
investigative and:

-      involve considerable novelty and high levels of technical risk; and

-      are conducted for the purpose of acquiring new knowledge or
information, including knowledge or information concerning the creation of
new or improved materials, products, devices, processes or services.

Supporting R&D activities are activities undertaken for the dominant purpose
of supporting core R&D activities.

Many activities are excluded from being either core or supporting R&D, such
as market research, quality control, trial runs, integrating open source or
commercial software, and computer software services.

Previously, core R&D activities involved innovation (defined as involving an
appreciable level of novelty) or high levels of technical risk.  Supporting
R&D activities were undertaken for a purpose directly related to conducting
core R&D activities. 

 

Industry comments are due in February.  AIIA will be preparing a
comprehensive submission to Treasury on these changes."