By Tim Florea, Managing Director of RSF Consulting

With another year coming to a close, and further developments in the R&D Tax Incentive space, I thought it would be useful to pause and reflect.

What does the future of the R&D Tax Incentive in Australia look like? What is the case for it as a support mechanism?

The R&D Tax Incentive has been in place in Australia for over 7 years now, following its predecessor the R&D Tax Concession (instated in 1986). These programs followed very similar schemes in leading countries such as America, Canada, and the UK amongst many. Notably, Singapore and New Zealand have subsequently followed Australia’s scheme. 

My predictions over the next 5 years for the R&D Tax Incentive

  • A more balanced approach to reviews and audits undertaken by the regulators, following a rebalancing of the R&D Tax Incentive system which was somewhat needed to ensure its integrity and longevity.

  • New guidance from both AusIndustry (on record keeping and activities with consultation currently occurring) and the ATO (on eligible expenditure and records) by the end of next year.

  • A change in the rules/benefit over the next 2 to 3 years (perhaps sooner if it is simply reduced inline with the tax rate being reduced).

  • Record keeping will continue to be a key focus and point of contention for claimants and the regulators. Claims with some merit that are reviewed will escalate to audit and be denied where records are significantly deficient.

  • More sophisticated assessments of software R&D claims, and further Administrative Appeals Tribunal (AAT) and Federal Court cases hopefully providing greater clarity for all.

The case for government support in this area

The R&D Tax Incentive is the single largest and most beneficial source of support for companies undertaking cutting-edge work in science and technology in Australia.

Innovation and productivity are key drivers of economic growth.

As economic conditions continue to change, Australia's continued heavy reliance on exporting resources, and China's economy pose key risks.

A paradigm shift needs to occur where Australia is seen as, and is, a nation supporting and promoting technological and scientific innovations.

At the moment, Australia generally follows key trends in larger economies such as that of America, and lags in the worldwide innovation index to 22nd in the world*. This places Australia as the Asia-Pacific’s sixth most-innovative country – behind Singapore, South Korea, Hong Kong, China, and Japan.

Ongoing investment and support to companies undertaking innovative technology and scientific work in Australia should be a critical focus.

The key mechanism to support this is already in place (the R&D Tax Incentive); it just needs to be seen as a reliable source of funding that is in touch with the way technological innovation occurs across sectors, and how modern companies operate.

A lot remains to be done in this area and positive collaboration between government, regulators and companies is key.


*https://ia.acs.org.au/article/2019/australia-drops-in-wipo-innovation-rankings-.html