R&D bill set to go back before Parliament again, start date of new tax credit scheme could be pushed back

Federal Innovation Minster Kim Carr’s controversial R&D tax credit scheme is scheduled to go back before the lower house of Parliament today, with suggestions that the independent MPs who hold the balance of power will force the Government to push back the start date for the scheme to July 1, 2011.

Carr had wanted the scheme to start from July , 2010, although this would mean the new rules would apply retrospectively.

But after opposition from business groups, it is believed the independents want the new scheme to start from 2011, giving companies more than eight months to prepare for its introduction.

In a brief statement, Carr said this morning: “Discussions with the Independents are continuing. It would be inappropriate for me to comment on those discussions.”

The office of NSW independent Rob Oakeshott also declined to comment.

PwC partner and R&D expert Sandra Mason welcomed the news that the start date could be changed, but said the Parliament needed to do a lot more work to fix the bill.

It’s great to see that it might be delayed. Obviously it allows companies to prepare and get their systems in order. But we don’t want the bill passed without further consultation,” she told SmartCompany today.

“It’s time to get it right now. It’s crunch time for this bill.”

The new R&D tax credit scheme, which replaced the current R&D tax concession scheme, is designed to focus more on supporting smaller companies perform R&D. Carr has said on numerous occasions that he is frustrated that a small group of large companies account for the bulk of R&D tax payments.

However, Mason says there are still several problems with the bill, including the current dominant purpose test and the feedstock rules.

Mason particularly wants to dominant purpose test – which essentially says that eligible activities must be undertaken for the dominant purpose of R&D – changed.

She gives the example of a company that invents a widget and successfully takes it to market after extensive R&D. Two years later (a typical time lag in R&D tax claims), when a assessor comes to look at that claim and see the widget has been a commercial success, Mason fears that R&D activity will be deemed to have been for the dominant purpose of commercial operations, not R&D.

“That’s a situation that could be played out around Australia.”

She also argues the feedstock rules are too broad. Currently, where a product is successfully commercialised, companies need to net off (or subtract) raw material and energy costs to figure out how much they can claim for the R&D credit.

But Mason says the new bill suggests companies would also have to subtract items such as labour and other inputs, meaning the amount they can claim could be greatly reduced.

“This focus that has been given to the start date it great, but it’s now time to get this right,” Mason says.