R&D tax incentive tweaks ‘will benefit Australian universities’

A long-awaited overhaul of Australia’s research and development tax break scheme will only partly mirror the recommendations from a landmark review, but observers believe universities will still benefit.

The reforms to the Research and Development Tax Incentive (RDTI), announced in the federal budget, will apply from mid-2028. Tax offsets through the premium “refundable” component of the scheme, reserved for smaller enterprises, will be increased by 4.5 percentage points to 48 per cent.

Companies will qualify for this boosted offset rate if their annual turnover does not exceed A$50 million (£27 million) a year, up from A$20 million at present. But “refundability” – the entitlement to recoup previously paid taxes if the offset exceeds one’s tax bill – will be limited to businesses established within the previous 10 years.

Incentives for larger companies will also be tweaked, with the top “non-refundable” offset rate – either 41.5 per cent or 46.5 per cent, depending on turnover – granted to organisations that channel at least 1.5 per cent of their expenditure into R&D, down from 2 per cent at present.

Businesses whose R&D expenditure falls below the 1.5 per cent threshold will attract an offset rate 8 percentage points lower.

Companies will also be able to offset up to A$200 million a year of R&D expenditure, up from A$150 million at present, but they will also have to spend at least A$50,000 a year on R&D to qualify for the scheme – up from A$20,000 at present.

Firms that spend less will be eligible if they conduct research with certain partners, including cooperative research centres.

University representatives care about the RDTI because of the scheme’s sheer scale. It disburses tax breaks worth some A$4.6 billion a year, almost double the combined allocations from the three main research funding bodies. Lobbyists have long called for RDTI reforms to foster more collaboration between businesses and public research organisations – an approach supported by the Strategic Examination of Research and Development (Serd) panel.

However, the budget changes overlook many of the tweaks recommended in the final Serd report, including requiring companies to pass a 100-point test – with points earned by collaborating with universities, among other things – to qualify for the top offset rate.

The Serd panel also wanted the top offset rate increased by 5 percentage points, not the 4.5 per cent announced in the budget, and the R&D spending cap removed rather than raised.

Another suggestion – R&D “vouchers” for companies too small to meet the minimum expenditure threshold – was also ignored in the budget. Nevertheless, lobbyists have hailed the changes.

Cooperative Research Australia said the RDTI reforms were “substantial” and well overdue. “Focusing the RDTI is critical to incentivising businesses to make real and significant investments in innovation,” said CEO Jane O’Dwyer.

The Tech Council of Australia said Australian R&D was “getting long-overdue attention” through “positive” changes to the RDTI. But newly appointed CEO Kate Cornick, who was a member of the Serd panel, indicated that the budget reforms had fallen short of the Serd vision.

“We proposed splitting it into three streams, really recognising that super young companies…need the most help,” she told a Universities Australia webinar. “If you’ve been there for years and years and years, it’s no longer an incentive – it’s just a government handout.”

Cornick said the changes would nevertheless improve the scheme’s operation. The favourable treatment of young and small businesses would help generate opportunities for universities, as would the reforms “at the top end of the spectrum”, such as increasing the spending cap.

“We need our biggest R&D companies to stay here,” she told the webinar. “They are great creators of R&D, they’re great partners to universities, and they’re also real incubators for the next generation of businesses.”

Some sources have withheld judgment on the RDTI reforms, pending more detail. Little was forthcoming in an Industry Department “insights” webinar on 27 May, but the department promised consultation. Exposure drafts of legislative amendments will be released for comment, it said.

john.ross@timeshighereducation.com