Thursday, October 7, 2010

R&D tax concessions – coming soon

The first week of parliamentary sittings of the ‘new paradigm’ that is the 43rd Australian parliament is complete.

I watched the first sitting day at Parliament House and there was a decidedly different mood in the air. After the initial excitement of the official opening and swearing-in ceremonies, Parliament got down to the ‘real’ business of running the country. Prime Minister Gillard took the helm and introduced her new team to the people of Australia.

Wayne Swan remains in his pre-election portfolio of Treasury and at the same time maintains his role of Deputy Prime Minister. Nick Sherry, who was previously the Assistant Treasurer, has been replaced by Bill Shorten, who steps into a combined portfolio of Assistant Treasurer and Minister for Superannuation and Financial Services. He will have direct responsibility for the day-to-day functioning of our tax system.

One of the highlights of the first week was the Minister for Innovation and Industry, Senator Kim Carr, re-introducing the legislation that deals with the implementation of the proposed new research and development (R&D) tax credit regime. You may remember that the previous government had been embarking on a reform project around replacing the existing R&D tax concession with a new credit system that delivers ‘below-the-line’ tax savings to eligible businesses.

The government’s objectives for the new R&D tax regime are to shift the benefit of the tax credit from large businesses to small to medium enterprises. Whether the changes will deliver the outcome the government are looking for is yet to be determined.

My concerns are in regards to the start date of the proposed law, which is currently retrospective at 1 July 2010. In my opinion, the proposed start date must be pushed back to 1 July 2011. In the tax policy world, it’s highly unusual to pass retrospective tax laws unless there is some major integrity risk for the tax system; that’s clearly not the case here so there is no reason to pass the laws with a 2010 start date.

What are your thoughts on the new R&D regime? Do you think it will deliver any tangible benefits to the business community, and do you agree that the start date should be deferred by one year?