Abolish $150m R&D tax incentive cap now, BCA urges
The peak body has called for the threshold’s immediate removal while a comprehensive government review of the system is underway.
The $150 million cap on claims for the research and development tax incentive must be abolished immediately, the Business Council says, warning that Australia “can’t afford” to delay changes pending the completion of a landmark review of the system.
The BCA said a “simple change” such as removing the maximum R&D expenditure threshold would lead to a flurry of Australian innovations.
“The private sector wants to do more Australian R&D, but the policy settings are holding back investment that could transform local products, creating jobs and driving economic growth,” chief executive Bran Black said in a statement on Wednesday.
“If the threshold were removed, we could see a flurry of Australian innovations that help solve some of our biggest challenges, including those in defence, energy, health and cyber,” he said.
The R&D tax incentive returns funds for businesses investing in new products and services.
A business can receive up to 43.5 per cent cash back on spending, with the size of the available rebate depending on its aggregated turnover.
A maximum amount of $150 million of expenditure per year is eligible for a 38.5 or 43.5 per cent tax offset for income years commencing on or after 1 July 2021.
The government is currently undertaking a landmark review of the system to improve R&D investment with levels sitting at a two-decade low.
Terms of reference included maximising the value of existing investment in R&D, strengthening linkages between research and industry and supporting the achievement of national priorities.
It would also focus on driving greater R&D investment and uplifting overall R&D intensity.
But with the review not reporting until the end of 2025, Black called for a change to the scheme by abolishing the threshold or “at a minimum increasing it to $250 million and indexing it”.
The government “can’t afford to wait” to address Australia’s declining investment levels and low productivity, he said.
“We need to create market incentives for non-taxpayer funded research, so businesses aren’t actively disincentivised from doing more R&D in Australia.”
Black said Australia should aim to increase R&D spend as a proportion of GDP to 3 per cent. It currently sits at around 1.7 per cent.
“If we want to diversify our economy, boosting R&D spend via incentives is an important part of building an environment that fosters investment and local innovation,” Black said.
As part of the R&D review, he said the BCA would also advocate for a more “comprehensive and coordinated” strategy, including improving collaboration between universities and businesses, more tax incentives and improving guidance on R&D tax incentive transparency data.
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