Bills Digest 19 1996-97 Industry Research and Development Amendment Bill 1996


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WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 16 August 1996.

CONTENTS

Passage History

Industry Research and Development Amendment Bill 1996

Date Introduced: 26 June 1996
House: House of Representatives
Portfolio: Industry, Science and Tourism
Commencement: The amendments described in this Digest, other than Item 13 of Schedule 1 of the Bill which will commence on 6 December 1995, commence on Royal Assent.

Purpose

To provide for advanced registration of bodies undertaking eligible research and development expenditure and to impose restrictions on the time by which applications for registration must be made.

Background

The principal assistance for industry to encourage investment in research and development (R&D) is the 150% tax deduction available in respect of eligible expenditure. The scheme was introduced in May 1985 as a temporary measure, but was made permanent in the 1992-93 Budget. The effectiveness of the scheme has been examined in recent years by the Industry Commission (IC), Bureau of Industry Economics (BIE) and the Australian National Audit Office. The various studies were used by the Department of the Treasury which examined the cost effectiveness of the tax concession in the Winter 1995 edition of the Economic Roundup. Main findings of the Treasury included:

  • both the IC and the BIE found that the scheme provided net benefits to Australia;
  • the IC found that as much as 90% of R&D investment would have occurred without the tax concession, while the BIE found that the concession encouraged between 10% and 17% of R&D expenditure;
  • only 20% of R&D expenditure was on 'genuinely innovative' projects; and
  • investment decisions are often based on the tax consequences of the investment rather than the nature of the R&D being undertaken, particularly when investment syndicates are involved.

The former government's response to the IC report was released on 6 December 1995 and provided for the continuation of the 150% tax deduction, subject to the tightening of certain eligibility criteria, particularly regarding the registration requirements. The general thrust of the former government's response was accepted by the Coalition during the election campaign and the Minister and Treasurer announced on 3 June 1996 that the measures, with some minor modifications, would apply from the original date of announcement, ie. 6 December 1995.

As noted above, the use of syndicates has tended to distort the use of the tax concession away from R&D spending and towards gaining the maximum tax benefit. Although not contained in this Bill, the Minister and the Treasurer announced on 23 July 1996 that new syndicates would not qualify for the tax concession after the time of announcement, ie. 5 pm. on 23 July 1996. It was also announced at that time that the eligibility criteria for the deduction would be tightened with the aim of restricting the deduction to actual expenditure on R&D. Again, these measures are not contained in this Bill.

Estimates of Tax Expenditure issued by the Treasury estimate that the scheme cost $400 million in 1992-93 and $525 million in 1993-94.

Main Provisions

To be eligible for the 150% tax deduction, the organisation claiming the deduction must be registered with the Industry Research and Development Board which is established under the Industry Research and Development Act 1986 (the Principal Act).

Proposed sections 39HG to 39HI, which will be inserted into the Principal Act by Item 4 of Schedule 1, provide for organisations to seek registration in advance of incurring R&D expenditure or during the year that such expenditure is incurred. Registration may be sought for R&D expenditure that will be incurred within 2 years after the year in which registration is sought. Bodies are to be registered unless the Board is of the opinion that the proposed activity is not R&D activity or they are excluded by the regulations.

Section 39J of the Principal Act provides for the registration of organisations that have incurred R&D expenditure in previous years. Item 13 will amend section 39J to provide that organisations are not to be registered after 2.30 pm. on 6 December 1995 in respect of expenditure incurred in 1992-3; that applications for registration must be made before 7 June 1996 in respect of 1993-94 or 1994-95; and for later years the application must be made within 6 months of the end of the year of income. Application: Item 13 will have effect from 2.30 pm. on 6 December 1995 (sub-clause 2(3)).

Item 23 of Schedule 1 inserts a new section 48A into the Principal Act which allows for regulations to be made prescribing fees that may be imposed under the Principal Act.

Contact Officer and Copyright Details

Chris Field Ph. 06 277 2439
15 August 1996
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9032
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 15 August 1996

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