It’s Groundhog Day again in Canberra, with the Senate inquiry into the government’s controversial reforms to the Research and Development Tax Incentive delayed for a third time and now pushed back until after the federal budget in October.
The Senate Economics Legislation Committee is scrutinising the Coalition’s planned reforms to the research and development tax incentive (RDTI) scheme, and had been set to hand down its final report on Monday, after a series of delays.
But late on Friday afternoon the committee’s webpage was updated with a new deadline of 12 October, a week after the government will hand down the also-delayed budget on 6 October.
It’s the third time that the committee has delayed its inquiry and will increase the uncertainty for Australian companies claiming the scheme, who will almost have to amend their 2019-20 tax returns if the legislation is eventually passed.
The legislation makes a series of significant reforms to the RDTI program, including the introduction of a $4 million cap for smaller companies and a new “intensity measure” to calculate the size of the offset for larger companies.
The 100-odd submissions to the inquiry are nearly universally against the changes, with many arguing they will lead to reduced claims for most companies and may force some firms to move overseas. There was particular concern with the impact of the new intensity measure on manufacturing firms.
The committee has only held one public hearing as part of its inquiry. It was originally given a reporting date of 30 April, with the government planning to have the legislation passed before the May budget.
But with the COVID-19 pandemic and a delayed budget, the inquiry’s deadline was pushed back to 7 August. On that new deadline day, the committee was given a further two weeks, with a new 24 August deadline.
The reporting date has now been pushed back by nearly two months, and Australian R&D companies will now have to wait until after the federal budget for some certainty around their claims in the last financial year and into the future.
The decision appears to have been made at the last minute, with the handing down of the RDTI report still listed on the Senate notice paper for Monday, and the legislation coming in at number 11 on the government’s order of business.
There has been increasing pressure on the government to back away from the reforms in light of the impact of COVID-19 on Australian companies, but there have been few signs it will be scrapped, although not many Ministers have been willing to publicly back the reforms of late.
While the Opposition is yet to finalise its final position on the legislation, it will likely look to move a number of amendments to it, leaving the government to negotiate with crossbench senators.
Due to the ongoing pandemic, a number of crucial senators, including from One Nation, that the government would likely have to win over are not in Canberra for the next sitting fortnight.
The delay also gives the government a chance to unveil new packages and incentives for R&D in the budget before revealing it is going ahead with the planned cuts to the RDTI, with some sort of policies geared at manufacturing appearing increasingly likely.
A recent hearing for the inquiry heard that the government is still planning to apply the changes retrospectively, meaning that any company that has filed its tax return before the legislation has passed may have to amend their claims and see some of their offset clawed back.
Independent RDTI consultant Jeremy Worthington said the delay may mean the government will change its mind on the retrospective nature of the changes.
“We would hope that this delay foreshadows an acceptance that the retrospective nature of any decisions made has now exceeded a reasonable time limit to be applied to FY20,” Mr Worthington said.
“We encourage companies not to delay engaging with the RDTI process whilst waiting to what whether the proposals will be implemented, and talk to your tax agent or R&D advisor about the potential amendment effects so that you can make an informed decision.”
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