Controversial Bill On R&D Tax Offsets Passes Parliament With PUP Amendments

Wednesday 18 February 2015 @ 10.17 a.m. | Taxation

Last week , the controversial Tax Laws Amendment (Research and Development) Bill 2013 passed the Senate with the support of the Palmer United Party, Ricky Muir, Family First’s Bob Day,  and independent Senators Nick Xenophon and John Madigan, and will now become law.  The Bill has had a long and contentious history.  The Bill amends the Income Tax Assessment Act 1997 (Cth) and was designed to tighten eligibility for tax incentives relating to research and development.

Under the Labor Government

The Labor Government originally introduced the Tax Laws Amendment (2013 Measures No. 4) Bill 2013 into the House of Representatives on June 26, 2013.  This Bill, among other things, proposed to “deny access to the research and development tax incentive for companies with aggregated assessable income of $20 billion or more for an income year”.  The changes were part of Labor’s “A Plan for Australian Jobs” policy and the extra revenue was meant to cover several of its new jobs initiatives.  However, the Bill never passed the House of Representatives and lapsed on the dissolution of Parliament in August.

The Australian reported that the Coalition initially opposed the legislation because they felt “it would punish large businesses from investing in innovation”.

The Coalition’s Initial Policy

However, both parties reversed positions after the 2014 election.  The Coalition Government decided to adopt the measure and introduced essentially the same basic idea in the Tax Laws Amendment (Research and Development) Bill 2013, which was introduced in November 2013.  TimeBase wrote an article about the Bill’s aims when it was first introduced, which was essentially similar to Schedule 1 of the Labor Bill.  The Bill passed the House of Representatives in December, but was then blocked in the Senate by Labor, now opposing the plan as it was not linked to a jobs scheme,  and the Greens.  The Bill languished in the Senate until a deal was struck over the holidays which made significant changes to the Bill.

The Amended Bill

According to the Australian, the Palmer United Party argued that the original proposal “would punish large Australian companies more than large foreign companies, most of whose income would not be considered assessable by the Australian Tax Office”.  The new amendments will instead introduce a cap of $100 million on the amount of research and development spending that can be claimed as a tax offset by companies.  The changes will also apply retrospectively to July 1 last year. 


Treasurer Joe Hockey and Finance Minister Mathias Cormann have said that the new measures should save the Government $1.35 billion and affect fewer than 25 companies.  In a joint statement, they said:

“[t]hese changes represent a fair and sensible outcome, providing a concession for small and medium-sized companies, which are typically more responsive to tax incentives for innovation while at the same time ensuring that important savings in the [federal] Budget are realised.”

However, not everybody agrees.

The Sydney Morning Herald reports that tax experts have said the changes could actually affect another 50 companies.  KPMG’s head of research and development, David Gelb, told the paper:

“While the number of companies might seem to be insignificant, companies in these industries are the ones that employ a lot of the people in research…  It may unfortunately discriminate against Australian companies as there will be foreign companies that get their full entitlements for R&D tax concessions.”

He also strongly criticised the decision to make the laws apply retrospectively, saying “[c]ompanies have already spent the money and done the R&D on basis they will have that entitlement there”, and that job losses may be a result.

ZDNet also reported that Labor Senator Kim Carr “slammed the government’s move”, quoting a statement he made saying:

“Some of Australia's biggest R&D investors, including companies such as Telstra and Caltex, made it clear that new R&D investments and the associated jobs could go offshore if the government's measure was passed… Universities like the University of New South Wales said their business research partnerships would be placed at risk if access to the R&D Tax Incentive was cut.”

Australian Industry Group chief executive Innes Wilcox told SmartCompany he was unhappy about the reforms, saying:

“These measures are harmful to Australia's long-term prosperity. We should be encouraging innovation. Instead the Parliament is considering measures that would reduce domestic spending on R&D… The measure is all the more perplexing because the biggest direct impacts will be felt by organisations undertaking applied and commercial R&D. In contrast, other current policy directions are focused on lifting commercial-related R&D.”

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.


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