The advisory body set up by the government to steer the Research and Development Tax Incentive has not met for more than 18 months, despite making major changes to the scheme during this time.
A senate committee last week heard there has been a “breakdown in communications” between regulators and the industry on the R&D tax incentive (RDTI), with the reference group not meeting since major changes were revealed by the government in the May budget.
The National Reference Group for the R&D Tax Incentive was set up when the new program launched and features members from tax and accountancy professional bodies and specialist consultancy firms, along with representatives from AusIndustry, the Australian Taxation Office and Innovation and Science Australia.
The group aims to provide stakeholders, the government and the ATO with a forum to “identify, prioritise and discuss views on technical and administrative issues relating to the RDTI” and is intended to “capture the concerns and perspectives of both administrators, national reference group members and their representatives”.
But while the government has rolled out some of the most significant, controversial changes to the RDTI scheme since its inception, the reference group has not met since March 2017.
During the time since, the government has announced a $2.4 billion haircut for the scheme in this year’s budget, and introduced legislation to Parliament, with a senate inquiry quickly launched.
The group’s guidelines states that it is meant to meet “at least biannually”, with the meetings to be organised by AusIndustry and the ATO.
The lack of meetings during this time was revealed during a public hearing for the senate inquiry last week, and was labelled “extraordinary” by Labor Senator David Smith.
But representatives from the ATO and AusIndustry said many members of the group had met informally in the time since the last official meeting, and the government is regularly consulting with state reference groups.
The senate hearing heard from Australian Information Industry Association advisor Ian Ross-Gowan, who pointed to the lack of reference group meetings as an example of the “poor guidance by the administrators” on the RDTI, and the “breakdown in the communication between the R&D industry and the administrators”.
“The last 18 months have been highly critical for the program. They used to meet regularly, every three or six months, with the ATO and AusIndustry to discuss more strategic issues. There are still state reference groups and they’re more in the tactically rather than strategic end of engagement with advisors,” Mr Ross-Gowan said.
Deloitte co-director of global investment and innovation incentives Sergio Duchini, who is a member of the reference group, said it hasn’t met recently due to the whole area being in a “state of flux”.
“There has been no real engagement with the industry participants for a long period of time. That group was meant to bring anomalies or unintended consequences to the attention of the regulator. There were a number that were raised and tabled,” Mr Duchini said.
Labor senators grilled government representatives on why the group has not met since the significant changes were unveiled and introduced to Parliament.
Deputy Commissioner of private groups and high wealth individuals at the ATO and national reference group co-chair Will Day said the group had met informally in recent months.
“Technically, it has been some time since the national reference group has met. However, many members came together as part of the consultation process for the policy legislation discussion earlier this year,” Mr Day said.
“We have had state reference groups held this year on a number of occasions, so we do believe that we have engagement with each of those individual members either at a national level or at a state and local level,” he said.
“We believe we are very active in that engagement; we just haven’t had a national body come together, because we really want to look at how that body should come together in a more strategic and effective way.”
“It hasn’t met as a body, technically, but it did meet. Many of those members came together as part of the consultation that took place earlier this year.”
Apart from the government representatives, every witness presenting to the senate inquiry was critical of the proposed changes to the RDTI scheme, leading the committee chair, Liberal senator Jane Hume, to call for some positive case studies.
“It’s not unusual in an inquiry such as this one to receive submissions only from people or organisations that feel they are negatively affected by a piece of legislation, and not from those that feel they are benefitting from it,” Senator Hume said. “Today we have not had a single witness that thinks that this is a terrific idea.’
The committee heard from numerous witnesses concerned with the changes, saying they could lead to companies moving R&D operations offshore, and furthering Australia’s decline in business expenditure on research and development.
Many of the witnesses were especially concerned with the introduction of an “intensity measure” to measure R&D claims, and the cap placed on smaller businesses.
“You’re going to wipe out a bunch of SMEs. There will be a reduction in the claims, extra compliance costs and they will go offshore, without a doubt,” RSM Australia director Stephen Carroll told the committee.
“It’s that easy for a company. And these are startups – startups can put out an ad and get a tech developer overseas instantly.”
“What additionality doesn’t recognise is that, at the moment, they do weigh up a little bit with regard to that decision: ‘it’s going to cost me less overseas. I can get a guy overseas, but I’d rather have someone here. What’s the cost difference?’”
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