R&D Tax Credit A Victory For Small Business

Small firms to benefit from R&D changes

By Michelle Hammond
Thursday, 16 June 2011

Small businesses will be the main beneficiaries of the Federal Government’s $1.8 billion R&D Tax Credit, thanks to a request by the Greens that small firms receive quarterly cash incentives.


Under the current scheme, companies can claim a 125% deduction for eligible expenditure, while small companies can also cash out their concession entitlements, being paid 30 cents in the dollar for each deduction they otherwise would have claimed.


Eligible activities include systematic, investigative and experimental activities involving innovation or high levels of technical risk.


Under the changes, a 150% deduction will apply to small companies – compared to 133% for other companies – and they will also receive quarterly cash payments for credits.


Eligible activities have been expanded to include experimental activities conducted to generate new knowledge, as well as supporting activities.


The overhaul of the R&D scheme is an attempt to redirect taxpayer funds from big businesses to subsidise operational costs for smaller firms undertaking risky R&D activities.


The changes will come into effect on July 1, and small firms will be able to get their tax credits quarterly from January 2014.


Greens deputy leader Christine Milne told The Australian Financial Review the agreement to make quarterly cash payments to small firms was reached after lengthy consultation between industry and the Greens.


She said the changes meant smaller companies, instead of multinationals, would get access to the tax breaks.


According to Innovation Minster Kim Carr, the changes are designed to redirect the payments to companies that are more responsive to R&D incentives.


“The R&D Tax Credit will deliver more funding to innovative firms including manufacturers, ICT and biotech,” Carr said in a statement.


“It will deliver a 45% refundable tax credit to companies with an aggregated turnover of less than $20 million and a 40% non-refundable offset to all others.”


“This will allow more firms to… grasp the opportunities of our transition to a cleaner economy.”


Carr said an advisory group will be established, through the Innovation Australia Board, to monitor the implementation and operation of the scheme.


The Government will also partner with AusIndustry to run an extensive education program to ensure firms are kept up-to-date.


The Australian Information Industry Association has welcomed the changes, claiming they provide a “clear framework” for tech companies undertaking R&D activities.


“The shift from annual to quarterly payments for SMEs will provide important cashflow benefits for businesses that are generating essential intellectual capital for Australia, often without the prospect of immediate returns,” AIIA chief executive Ian Birks says.


“The revised level of support for smaller companies also increases, effectively doubling the after-tax value of support.”


But Heather Ridout, chief executive of Australian Industry Group, says Ai Group is disappointed the Government is proceeding with changes to the R&D tax incentive, arguing they will undermine the “general effectiveness” of the scheme.


“Our consistent input to the Government has been that there are substantial risks inherent in the new arrangements,” Ridout says.


“In particular, there are serious questions that the remodeled tax incentive will fail to stimulate experimental development, which is the bread and butter of business R&D.”


“The tightening of eligibility comes at a time when manufacturing generally is finding it hard to attract investment, let alone for research and development, and when Australia’s productivity performance has collapsed.”

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