R&D Tax Incentive changes: Did Morrison just hint at a backtrack?

As we draw closer to the federal budget next week, Prime Minister Scott Morrison has given the slightest of nods to suggest Treasury may backtrack on controversial changes to the R&D Tax Incentive.

The proposed Treasury Laws Amendment Bill, which would change the Research & Development Tax Incentive (RDTI), is currently under consideration by the Senate Economic Legislation Committee, which is due to release its report in October.

Speaking at the National Press Club yesterday, after announcing a $1.5 billion manufacturing plan, the PM was quizzed on the $1.8 billion that is set to be cut from the R&D Tax Incentive scheme.

When asked if he was open to rethinking the proposed changes, in order to encourage more research and development, Morrison gave the teeniest of hints that the answer may be ‘yes’.

“We certainly want to encourage more research and development,” he said.

But, he would not be drawn on any further details.

“Our answer to that question will be delivered by the Treasurer next Tuesday night.”

The comments come in the same week the Department of Industry has launched a ‘customer survey’, questioning how people engage with the incentive.

The department is seeking to understand how long people spend on accessing the incentive, how useful the guidance available is, and generally what the experience is like.

“Your responses will help us to target specific areas for improvement to ensure the R&DTI is accessible to companies who are doing eligible R&D,” the survey page says.

The survey is open until October 11.

The tech community has been rallying against the proposed changes to the RDTI for some time.

As it stands, the amendment would put a $4 million cap on entitlements, and create a tiered system for the incentive.

Unpopular even before the pandemic, the cuts have been widely condemned by the tech community in light of the COVID-19 crisis.

In an open letter signed by founders and execs at the likes of Atlassian, Canva, Airwallex and Culture Amp, a consortium of tech leaders urged Morrison to engage with the sector on these policies, and put the brakes on the R&D changes.

“Now is not the time to reduce the level of government support for R&D in Australia,” the letter said.

“While we appreciate that these investments will come at an expense, we propose them with the firm belief that the innovation economy, including the tech economy … will drive the future of Australia’s prosperity,” it added.

Originally due in March, the Senate Committee’s report has been plagued by delays, and is now due to be released on October 12.

But, to add insult to injury, the ATO has made it clear that the changes will be implemented retrospectively, meaning startups that have claimed the RDTI this financial year may have to make repayments.

Speaking to SmartCompany last week, StartupAus chief executive Alex McCauley said addressing these issues is the “number one priority” for startups in this year’s budget.

“It’s pretty clear that now is not the time to be reducing investment in Australia’s economic future, which literally is what a cut to the R&D Tax Incentive is,” he said.

But, as they stand, he doesn’t see the changes getting past parliament.

The timing means the legislation is now “basically a non-starter”, he added.

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