Business Council calls for R&D tax incentive changes

The Business Council of Australia (BCA) is calling for an increase in investment in research and development to induce national productivity and economic growth, starting with modernising the R&D tax incentive definition.

According to BCA, it was crucial that Australia “got the tax settings right” as the R&D tax incentive played a central role in the innovation ecosystem, as it helped offset the costs and risks associated with R&D.

It was recommended that consistency between tax settings and data collection should be improved to help reduce red tape and strengthen national insights, as the incentive worked by reducing the marginal costs of undertaking R&D and recognised the broader productivity and economic benefits of innovation often exceed returns captured by the firms investing in it.

“While Australia has strong advantages, such as a highly skilled research workforce, the competitiveness of our tax system is a critical factor in attracting, retaining, and commercialising innovation offshore,” BCA said.

“As other jurisdictions expand their incentive regimes, the risk is that the marginal R&D investment dollar increasingly moves offshore.”

BCA also emphasised modernising the tax incentive as it provided certainty and confidence for businesses to invest in long-term R&D, as it was well understood across industry and seen as a reliable, scalable policy mechanism that supported business-led innovation, workforce development and global competitiveness.

It was noted that BCA members were increasingly concerned by the restrictive definition of R&D under Australia’s tax law, as it limited access to the tax incentive and “underrepresented the scale of business innovation across the country”.

Bran Black, BCA chief executive, said businesses wanted to step up and improve productivity by investing more and generating economic growth.

“Supercharging research and development investment in Australia presents a significant opportunity for business and the government to lift productivity and raise living standards for all Australians,” he said.

“We need a new approach to R&D that starts with incentivising businesses to invest more, otherwise investment opportunities will go overseas, and we will fall further behind.”

Along with modernising the R&D incentive definition, BCA also called for the tax incentive threshold to be abolished or increased to $250 million.

BCA said the current structure of the R&D tax incentive, with the $150 million expenditure cap and the use of an intensity-based calculation, limited the program’s effectiveness, placing a hard ceiling on support, which discouraged large-scale investment and eroded the incentive for global firms to conduct R&D in Australia.

“Removing the R&D expenditure cap and revisiting the design of the intensity measure would help restore fairness and ensure that companies investing heavily in Australian-based R&D are properly supported – regardless of their operating structure,” BCA said.

Black said BCA was prioritising R&D commercialisation as a key opportunity to grow productivity and welcomed ongoing collaboration with the government.

“R&D is crucial to ensuring we have a future made in Australia, expanding our current industries and opening up new sectors like quantum, advanced manufacturing, cyber and artificial intelligence.”

“We need a national R&D strategy that helps incentivise businesses, researchers, investors and government to work together to overcome our biggest challenges, like the energy transition. Building new industries takes time and money, and amending or ideally removing the R&D tax incentive threshold cap would ensure R&D-intensive companies invest and innovate in Australia.”