The R&D Tax Incentive – a way forward

By Kris Gale

Followers of the saga surrounding the Bill that cuts the value of the R&D Tax Incentive have a long time to wait until uncertainties are cleared up.

The Bill pares back value for the Refundable R&D Tax Offset and slashes support for the vast majority of Non-Refundable Offset claimants off the back of a questionable R&D intensity premium measure.

The Bill purports to take effect from 1 July 2019, however it has yet to pass. And now, the report from the second Senate Economics Legislation Committee has been delayed until 24 August.

Companies with a 30 June 2020 financial year end have been able to lodge returns for the best part of two months, yet these companies are faced with the prospect of amending tax returns and paying back rebate monies if the legislation is passed with retrospective effect.

The problem has been exacerbated with the recent release of the ATO’s Draft Determination that states that salary expenditure linked to JobKeeper payments will not qualify for the Incentive.

It is hard to see how JobKeeper can be seen as consideration for a company to do R&D activities as the ATO is arguing.

The date of 24 August is again looming large as submissions regarding the draft are due by that date.

In short, many companies submitting 2019/20 R&D tax returns at the moment simply do not know what their correct claim is.

This uncertainty compounds the COVID-related uncertainty that we are all experiencing. And, if the Federal Government adheres to its current timetable, these uncertainties won’t dissipate any time soon.

A whole political process must follow the issuing of the Senate Committee’s report. The ATO will need to turn its draft position on JobKeeper into a final one.

It can only be that removing uncertainty and increasing confidence around the Incentive, the Government’s flagship R&D program, is a positive. This begs the question: why wait?

We suggest the Government could remove two significant problems with two simple announcements:

1. Should the R&D Tax Bill pass in any form, the measures will take effect prospectively from an identified date that follows the passing of the Bill.

2. R&D salary expenditure subsidised by JobKeeper payments remains eligible for the Incentive and amending legislation will be passed confirming the same.

Kris Gale is chairman of Michael Johnson Associates, a company focused on the direct delivery of R&D tax benefits to Australian companies.