Written by Bob Deutsch, CTA, Senior Tax Counsel
I have previously written about the Research and Development
(R&D) tax offset contained in Division 355of the ITAA 1997 (TaxVine No. 27
- 28 September 2018).
(R&D) tax offset contained in Division 355of the ITAA 1997 (TaxVine No. 27
- 28 September 2018).
That preamble was written specifically in the context of an
AAT decision in Moreton Resources Ltd and Innovation and Science Australia
[2018] AATA 3378.
AAT decision in Moreton Resources Ltd and Innovation and Science Australia
[2018] AATA 3378.
Today, I take the opportunity to address more generally the
R&D tax offset, particularly in the context of where we currently stand on
all this in Australia.
R&D tax offset, particularly in the context of where we currently stand on
all this in Australia.
As mentioned in my previous piece, the legislation in this
area is complex and convoluted, running as it does to 21 pages of detailed
technical content and includes a fairly complex definition of core R&D
activities and supporting R&D activities. Whether it is consistent with
what was originally intended or with what most might think of as “research and
development” is open to argument.
area is complex and convoluted, running as it does to 21 pages of detailed
technical content and includes a fairly complex definition of core R&D
activities and supporting R&D activities. Whether it is consistent with
what was originally intended or with what most might think of as “research and
development” is open to argument.
My real concern is that the current legislation and its
administration has the consequence that much of the research and development
that should take place here is in fact being pursued offshore. Companies have
voted with their feet and, in many significant cases decided to pursue R&D
activities in countries which have a more friendly commercial and tax
environment where they have better opportunities and can achieve better
outcomes.
administration has the consequence that much of the research and development
that should take place here is in fact being pursued offshore. Companies have
voted with their feet and, in many significant cases decided to pursue R&D
activities in countries which have a more friendly commercial and tax
environment where they have better opportunities and can achieve better
outcomes.
I have no reliable figures to work off in this context, but
I do have anecdotal evidence to suggest that many important innovative ideas
are being pursued in foreign jurisdictions after the initial seed was developed
in Australia, and a large part of the reason for this trend has a great deal to
do with more favourable commercial and tax arrangements that might be available
in foreign locations.
I do have anecdotal evidence to suggest that many important innovative ideas
are being pursued in foreign jurisdictions after the initial seed was developed
in Australia, and a large part of the reason for this trend has a great deal to
do with more favourable commercial and tax arrangements that might be available
in foreign locations.
What is needed is a robust framework that can achieve dual
outcomes, namely:
outcomes, namely:
- Encourage the genuine R&D activities
to be pursued with enthusiasm in Australia; - Prevent the cowboys from manufacturing
bogus R&D claims in Australia;
In drawing out this theme, I am not suggesting for one
moment that there should be a rush to the bottom where we create an artificial
environment where outlandish R&D claims can be made to facilitate
minimisation of taxation.
moment that there should be a rush to the bottom where we create an artificial
environment where outlandish R&D claims can be made to facilitate
minimisation of taxation.
Quite the contrary, what I would advocate for is a strong,
robust, but relatively simple research and development offset arrangement which
could be pursued in Australia and would give rise to taxation advantages in
relation to research and development that occurs within the Australian
geographic borders. My great fear is that we are losing vast sums of money to
foreign countries where these initiatives that are so vital to a vibrant
economy are being pursued outside Australia, even though the initial thinking
has emerged from within Australia.
robust, but relatively simple research and development offset arrangement which
could be pursued in Australia and would give rise to taxation advantages in
relation to research and development that occurs within the Australian
geographic borders. My great fear is that we are losing vast sums of money to
foreign countries where these initiatives that are so vital to a vibrant
economy are being pursued outside Australia, even though the initial thinking
has emerged from within Australia.
To that end, I am very pleased to see the most recent ATO
initiative in the form of the establishment of a R&D Roundtable (the
Roundtable), a new forum which will be designed to discuss administrative
priorities, opportunities, and emerging issues in the operation of the R&D
tax incentive. This Roundtable will be jointly hosted by the Department of
Industry, Innovation, and Science and the ATO.
initiative in the form of the establishment of a R&D Roundtable (the
Roundtable), a new forum which will be designed to discuss administrative
priorities, opportunities, and emerging issues in the operation of the R&D
tax incentive. This Roundtable will be jointly hosted by the Department of
Industry, Innovation, and Science and the ATO.
Whilst this is a laudable initiative, it is purely to
develop administrative processes to deal with the existing legislation.
develop administrative processes to deal with the existing legislation.
 |
| Bob Deutsch, CTA |
My problem is more fundamentally with the existing
legislation which is, in my view, a total turnoff to almost any company which
is looking to develop a research and development platform in Australia. I can
think of one company in particular, namely CSL (the former Commonwealth Serum
Laboratories) which whilst originating from Australia, has now developed a
R&D platform outside Australia which makes what happens in Australia
through that company look fairly pedestrian. Clearly, this company has grasped
the nettle and reached out to overseas locations to develop a key R&D
presence in jurisdictions which are both commercially and tax wise, more
favourably disposed to accommodating important R&D developments.
legislation which is, in my view, a total turnoff to almost any company which
is looking to develop a research and development platform in Australia. I can
think of one company in particular, namely CSL (the former Commonwealth Serum
Laboratories) which whilst originating from Australia, has now developed a
R&D platform outside Australia which makes what happens in Australia
through that company look fairly pedestrian. Clearly, this company has grasped
the nettle and reached out to overseas locations to develop a key R&D
presence in jurisdictions which are both commercially and tax wise, more
favourably disposed to accommodating important R&D developments.
Are there any ideas out there for a better framework which
can more fully accommodate such corporate initiatives within the Australian
taxation system?
can more fully accommodate such corporate initiatives within the Australian
taxation system?
There must be foreign legislative frameworks which can be
used as a benchmark for how we might develop our own research and development
legislation.
used as a benchmark for how we might develop our own research and development
legislation.
In order to dispel any suggestions of undisclosed bias, I
freely concede that my family owns shares in CSL.
freely concede that my family owns shares in CSL.
