Government releases draft laws for R&D tax incentive changes

Treasury has released draft laws on its proposed changes to the Research and development (R&D) tax incentive, which would apply from 1 July 2028.

The government said the proposed changes simplify and refine the R&D tax incentive to better incentivise business R&D spending in Australia that leads to positive economic benefits, while reducing growth in the fiscal cost of the incentive.

The amendments remove support for R&D activities from the R&D tax incentive, increase the minimum and maximum expenditure thresholds, and increase the turnover threshold for the refundable offset.

Under the proposed laws, the minimum expenditure threshold will be increased to $50,000, up from the current $20,000. The maximum expenditure eligible for a premium rate of tax offset will increase from $150 million to $200 million.

The proposed amendments also restrict access to the refundable offset to entities in the first ten years of carrying on an enterprise or from the point of first registration for the R&D tax incentive, and the first 15 years for entities conducting R&D activities related to therapeutic goods.

Treasurer Jim Chalmers said the draft legislation acknowledges the unique circumstances of biotechnology and medical technology firms by providing access to the refundable offset for up to 15 years, recognising the longer regulatory approval processes and product development timeframes for these sectors.

The bill also increases the offset rates for R&D activities, reduces the intensity premium threshold and provides a non-refundable offset at the highest tax offset rate for entities who are beyond the first 10 years of carrying on an enterprise or being registered for the R&D tax incentive, with an aggregated turnover of less than $50 million.

The government is also seeking views on whether clinical manufacturing research and development (R&D) expenditure should be eligible for the R&DTI as part of its consultation.

The amendments are based on the recommendations made in the Ambitious Australia Report, published earlier this year by the Department of Industry, Science and Resources.

An independent panel produced the Ambitious Australia Report and reviewed the opportunities and challenges facing Australia’s R&D system.

The report recommended changes to simplify the R&DTI, improve its impact and address concerns about program complexity, cost and integrity.

The report noted that most companies using the RDTI scheme were SMEs that weren’t actually growing.

“The RDTI must be reformed to focus on growth-focused businesses only, including scale-ups, that reinvest in RD&I activities,” it said.

The government said these amendments form the first part of the government’s response to the Ambitious Australia Report.

“The reforms are intended to simplify the R&DTI, encourage additional business investment in R&D and improve the long-term sustainability of the program,” the government said.

The treasurer said the reforms improve the “effectiveness, sustainability and integrity of the R&D Tax Incentive and complement the wider package of reforms to support research and development and innovation in the budget”.

The government is currently seeking views on the exposure draft legislation and supporting documents, with consultation closing on 28 September.