Coalition to scrap R&D tax credits, boost venture capitalists

But a Liberal-led Government will look to introduce tax credits in the following financial year

The Coalition will scrap plans to revamp research and development tax concessions until the 2011/2012 financial year, but the Liberal party has indicated the system still requires a review.

The party’s Innovation, Industry, Science and Research policy, released today, outlines plans to reverse many of Labor’s existing plans to promote innovation and the scientific industry, as well as calling for an end for assistance to the automotive industry, if Tony Abbott and the Liberal party win Government on 21 August.

The Liberal party will also refuse to pass reviewed legislation of R&D tax concessions, which the Labor party has had on the table since January.

Australia’s current R&D incentives regime sees R&D expenditure able to be deducted at 125 per cent of the actual amount of the expense, or 175 per cent for incremental expenditures.

Labor’s proposed changes would see the deduction-based system replaced with R&D tax credits - 45 per cent refundable credits for companies with group turnover for less than $20 million, and 40 per cent non-refundable credits for large corporations. The tax credits would only apply to software companies whose development is for external rather than internal use.

The new system was praised by consulting firm KPMG as improving the attractiveness of the Australian research and development industry amid increasing withdrawals from the local market. Software developers, and particularly video games developers, saw the potential in the new system as an incentive for renewed foreign investment ahead of competing markets in Canada and Singapore.

While the legislation was initially proposed to come into effect at the beginning of the current financial year, it was stalled in the Senate by the Liberal party, and is yet to come to pass.

If the Liberal party wins Government, it will instead scrap the proposed legislation in favour of retaining the deduction-based system until the next financial year.

The policy indicates the Coalition may look to transition to tax credits eventually anyway, but will retain “the integrity of the existing R&D Tax Concession system”.

The party will also review the Innovation Investment Fund with a view to promoting the expansion of the venture capital industry in Australia.

However, of the $254.75 million committed to the policy, no funding has been assigned to either the R&D tax review or the Innovation Investment Fund, with only $350,000 vaguely allocated to “improved measurement of innovation”.

The policy comes perilously close to election day, and a fortnight after current minister for Innovation, Industry, Science and Research, Senator Kim Carr, publicly criticised the party for a lack of policy. However, in replying to the released plans, Carr said the policy was “lightweight” and called the R&D plan a “cop out”.

“[The Liberal party are] retaining the existing R&D Tax Concession for now, but conceding the need to make improvements along the lines Labor has already proposed, which they have stalled in the Senate,” he said in a statement.

“By opposing the R&D Tax Credit, the Coalition has denied Australian businesses improved assistance and greater access to cash refunds. Now they admit they will consider introducing a similar credit themselves if they ever build up the courage.”

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