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R&D Tax Review report recommends capping refund available to start-ups at $2 millon  


The Federal Government has encouraged businesses to submit feedback on findings from Research and development (R&D) Tax Incentive Review report, released this week

Undertaken by Chair of Innovation Australia Bill Ferris, Australia’s Chief Scientist Alan Finkel and Secretary to the Treasury John Fraser, the review had the purpose of identifying opportunities to “improve the effectiveness and integrity of the R&D Tax Incentive, including by sharpening its focus on encouraging additional R&D spending.”

The R&D Tax Incentive programme was introduced on 1 July 2011 to boost the quality and quantity of R&D undertaken by industry to drive productivity and growth.

The report makes six recommendations, including: “a cap in the order of $2 million on the annual cash refund payable under the R&D Tax Incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income”.

The review panel provided the following rationale for the cap:

“…the programme incorporates effective additional support for SMEs and start-ups, since its refundable component is available at a premium rate to companies with turnover less than $20 million. This provides important cash-flow assistance to SMEs and increases the potential for additional investment in R&D.

“The considerable growth in the cost of the refundable component is, however, impacting the programme’s long-term sustainability. Refundability is likely to provide fewer tangible benefits for SMEs with larger R&D expenditures, who will be more able to find alternative sources of finance at relatively lower costs in comparison with firms with lower R&D expenditure.

“… placing a cap on the amount of cash refund that can be received, for example, at $2 million would maintain strong cash-flow support for SMEs up to that limit, while improving the sustainability of the programme. While refunds would be capped, any remaining entitlement to a tax offset through the programme would be carried forward and able to be offset against any future tax liability.

Alex McCauley, the CEO of Australia’s peak start-up body, StartupAUS released the following statement:

“StartupAUS has advocated extensively for boosting the R&D tax incentive for high-growth early stage startups. Our view has for some time been that the government should look at boosting the amount allocated to startups under the program, while at the same time paying it quarterly to help young companies overcome cashflow issues.

“We welcome elements of the &D Tax Incentive review. We agree that reducing the administrative burden and providing greater transparency are positive steps.

“Overall, however, we believe more focus needs to be on the pointy end of the program, where dollars spent on start-ups translate directly into jobs produced and additional R&D being conducted.

Submissions on the report are invited from now until 28 October 2016. This will be accompanied by industry and state-based roundtables in all states and territories. The government will then hold further discussions after all submissions have been received, during November and December. Finally, thegovernment will finalise their response to the report before the end of March 2017.

The review report and further information about the consultation process are available at: