Referral of the inquiry
1.1
The Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019 (the bill) was introduced into the House of Representatives and read a first time on 5 December 2019.
1.2
On 6 February 2020, the Senate referred the provisions of the bill to the Senate Economics Legislation Committee (the committee) for inquiry and report by 30 April 2020. This date was later extended to the 12 October 2020.
Purpose of the bill
1.3
The bill's Explanatory Memorandum (EM), has three core objectives:
better target the Research and Development Tax Incentive (the RDTI);
enhance the integrity of the RDTI; and
improve the administration of the RDTI.
1.4
The bill comprises three schedules, with each focusing on a specific objective:
Schedule 1 reforms the RDTI to better target the incentive and improve its effectiveness and integrity.
Schedule 2 aims to enhance the integrity of the RDTI by ensuring that R&D entities cannot obtain inappropriate tax benefits and by clawing back the benefit of the RDTI to the extent an entity has received another benefit in connection with an R&D activity.
Schedule 3 aims to improve the administrative framework supporting the RDTI by making information about R&D expenditure claims transparent, enhancing the guidance framework to provide certainty to applicants and streamlining administrative processes.
1.5
In his second reading speech, the Hon. Josh Frydenberg MP, Treasurer of the Commonwealth of Australia, stated:
Today the government is reintroducing legislation to reform the research and development tax incentive—reforms that will ensure that the tax incentive remains an effective and sustainable part of Australia's overall support for R&D.
…the existing flat premium available to companies with an annual turnover above $20 million is being changed to one that increases as a company's R&D intensity increases. This will provide an incentive for companies to increase their R&D expenditure.
Relative to the bill introduced in the previous parliament, the intensity test has also been simplified, with a three-tier test replacing the previous four‑tier system.
…the maximum amount of R&D expenditure eligible for concessional R&D tax offsets will increase from $100 million to $150 million per annum. This gives the largest investors in R&D an incentive to keep their R&D activities in Australia.
In better targeting and improving the integrity and sustainability of the research and development tax incentive, the reforms in this bill will ensure that the incentive remains an important part of the government's overall support for research and development in Australia.
Background
The 2011 commencement of the RDTI
1.6
In the 2009‑10 Budget, the Rudd government announced it would replace the existing Research and Development Tax Concession with the RDTI.
1.7
Treasury's 2009 consultation paper provided the following description of the proposed measure:
The new R&D tax incentive will be more effective in delivering support for business R&D and in targeting that support to where it is most likely to produce net-benefits for the Australian community.
As recommended by the Review of the National Innovation System (the NIS Review), the existing scheme of enhanced deductions will be replaced with less complex and more predictable tax credits. Companies will no longer need to distinguish between their base and incremental expenditure on R&D in working out their claim. It is the location of R&D activity in Australia that will count under the new scheme rather than where the resulting intellectual property (IP) rights reside.
1.8
The RDTI commenced on 1 July 2011 and, as per the EM, its original purpose was to encourage R&D activities that might not otherwise occur and which would likely have wider benefits, such as positive externalities, for the Australian economy.
1.9
The RDTI currently consists of two core components. They are the:
43.5 per cent refundable tax offset available to most small R&D entities—i.e. those with aggregated turnovers of less than $20 million; and the
38.5 per cent non-refundable tax offset available to larger R&D entities and R&D entities controlled by one or more exempt entities.
1.10
The RDTI is subject to a $100 million expenditure threshold. Expenditure on R&D activities in-excess of $100 million is not eligible for the full rate of the relevant R&D tax offset. Instead, these notional deductions give rise to an offset at the R&D entity's corporate tax rate.
The 2015–16 Three Fs review of the RDTI
1.11
In December 2015, the Turnbull Government commissioned a review of the RDTI as part of its National Innovation and Science Agenda. The review panel was chaired by the then Chair of Innovation and Science Australia (ISA), Mr Bill Ferris AC; Australia's Chief Scientist, Dr Alan Finkel AO; and the then Secretary to the Treasury, Mr John Fraser.
1.12
The review is often referred to by stakeholders as the 'Three Fs Review'. The purpose of the review was to 'identify opportunities to improve the effectiveness and integrity of the RDTI, including by sharpening its focus on encouraging additional R&D spending'.
1.13
The review panel and supporting taskforce conducted stakeholder consultations with companies, peak industry entities, research institutions, reference groups, and policy makers. The review received 92 submissions.
1.14
The review panel found that the 'programme falls short of meeting its stated objectives of additionality and spill-overs', and made six recommendations to be considered as a package of measures to improve the overall effectiveness and integrity of the programme while encouraging additional R&D.
1.15
A short summary of the review's recommendations is set out below:
Recommendation 1—Retain the current definition of eligible activities and expenses under the law, but develop new guidance, including plain English summaries, case studies and public rulings, to give greater clarity to the scope of eligible activities and expenses.
Recommendation 2—Introduce a collaboration premium of up to 20 per cent for the non-refundable tax offset to provide additional support for the collaborative element of R&D expenditures undertaken with publicly‑funded research organisations.
Recommendation 3—Introduce a cap in the order of $2 million on the annual cash refund payable under the R&D tax incentive, with remaining offsets to be treated as a non-refundable tax offset carried forward for use against future taxable income.
Recommendation 4—Introduce an intensity threshold in the order of 1 to 2 per cent for recipients of the non-refundable component of the R&D tax incentive, such that only R&D expenditure in excess of the threshold attracts a benefit.
Recommendation 5—If an R&D intensity threshold is introduced, increase the expenditure threshold to $200 million so that large R&D-intensive companies retain an incentive to increase R&D in Australia.
Recommendation 6—That the government investigate options for improving the administration of the R&D tax incentive (e.g. adopting a single application process; developing a single programme database; reviewing the two-agency delivery model; and streamlining compliance review and findings processes) and additional resourcing that may be required to implement such enhancements. To improve transparency, the government should also publish the names of companies claiming the R&D tax incentive and the amounts of R&D expenditure claimed.
1.16
The bill's EM notes that the current reforms to the RDTI are made in response to the above recommendations made by the Three Fs Review in 2015.
The 2018-19 Budget proposal to reform the RDTI
1.17
Following the review, the Turnbull Government announced in the 2018‑19 Budget that 'the Government will amend the research and development (R&D) tax incentive to better target the program and improve its integrity and fiscal affordability in response to the recommendations of the 2016 Review of the R&D Tax Incentive'.
1.18
The key reforms announced during the budget were:
For companies with aggregated annual turnover of $20 million or more, the government will introduce an R&D premium that ties the rates of the non‑refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.
The R&D expenditure threshold—the maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will be increased from $100 million to $150 million per annum.
For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate. Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.
Implementing stronger compliance and administrative improvements, such as increasing resourcing for the Australian Taxation Office and Department of Industry, Innovation and Science, which will be used to undertake greater enforcement activity and provide improved program guidance to participants.
1.19
The Treasury subsequently undertook a consultation process on the draft legislation from 28 June 2018 to 26 July 2018 which implemented the government's reforms and received 76 submissions during this process.
1.20
On 20 September 2018, the Assistant Treasurer, the Hon. Stuart Robert MP, introduced the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 (the prior bill) into the House of Representatives.
1.21
The prior bill was an omnibus bill and, amongst other reforms, contained the Turnbull government's proposed reforms to the RDTI.
Senate Economics Legislation Committee's inquiry into the prior bill
1.22
On 18 October 2018, the Senate referred the provisions of the prior bill to the committee for inquiry and report. The committee held three public hearings and received 75 submissions. The committee held the following view:
The committee notes the findings of the 2016 Review of the R&D tax incentive [the Three Fs Review], in particular that the R&D tax incentive program falls short of meeting its stated objectives of additionality and spill-overs. On balance the committee supports this bill in its intent to address this issue.
The committee was pleased to hear that the R&D tax incentive program had had a positive impact on many Australian businesses and researchers.
On examination of the proposed $4 million cap on the refundable tax offset, the committee believes that it would benefit from some finessing to ensure that R&D entities that have already made investment commitments are not impeded unintentionally.
The committee also notes the concerns raised by participants in relation to the calculation of the proposed intensity premium. The committee shares participants' concerns that this intensity measure may have unintended consequences for larger R&D entities undertaking eligible R&D activities.
The committee considers that, as currently drafted, the proposed intensity measure has possible unintended consequences that may disadvantage a range of Australian R&D entities.
1.23
In its final report to the Senate on 11 February 2019, the committee made the following recommendations in relation to the RDTI:
The committee recommends that the Senate defer consideration of the bill until further examination and analysis of the impact of schedules 1–3 [the schedules related to the RDTI] is undertaken. In particular, the committee recommends that:
the approach to the cap on the refundable portion of the Research and Development (R&D) tax incentive is refined, noting investment decisions already taken; and
the formula for R&D intensity is refined, noting inherent differences in R&D intensity across industries and impacts on businesses with large operating costs.
1.24
On 11 April 2019, the earlier iteration of the bill lapsed when the 45th Parliament was prorogued by the Governor‑General.
The current proposal to reform the RDTI
1.25
On 5 December 2019, the bill was introduced into the House of Representatives and read a first time.
1.26
The bill contains very similar clauses to the prior bill, which lapsed at the end of the 45th Parliament, with the key difference being made to the intensity thresholds.
1.27
Specifically, the number of intensity thresholds [Tiers] and their associated rates were amended as shown in Tables 1.1 and 1.2 below.
Figure 1.1: Prior bill's intensity thresholds
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1
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National deductions representing up to and including 2 per cent of total expenses
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4 percentage points
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2
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Notional deductions representing greater than 2 per cent and up to and including 5 per cent of total expenses
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6.5 percentage points
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3
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Notional deductions representing greater than 5 per cent and up to and including 10 per cent of total expenses
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9 percentage points
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4
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Notional deductions representing greater than 10 per cent of total expenses
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12.5 percentage points
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Source: Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018, Explanatory Memorandum, p. 17.
Figure 1.2: Current bill's intensity threshold
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1
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Notional deductions representing up to and including 4 per cent of total expenses
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4.5 percentage points
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2
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Notional deductions representing greater than 4 per cent and up to and including 9 per cent of total expenses
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8.5 percentage points
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3
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Notional deductions representing greater than 9 per cent of total expenses
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12.5 percentage points
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Source: Explanatory Memorandum, p. 13.
Provisions of the bill
Schedule 1—Better targeting the R&D Tax Incentive
Summary of the new law
1.28
Schedule 1 to the bill aims to better target the RTDI and improve its effectiveness and integrity. It does this through:
increasing the R&D expenditure threshold from $100 million to $150 million, and making the threshold a permanent feature of the law;
linking the R&D tax offset for refundable R&D tax offset claimants to claimants' corporate tax rates plus a 13.5 per cent point premium;
capping the refundability of the R&D tax offset at $4 million per annum; and
increasing the targeting of the Incentive to larger R&D entities with high levels of R&D intensity, reducing the benefits provided to certain entities undertaking R&D activities and increasing the benefit to others.
1.29
Table 1.3, below shows a comparison of the current law with the new law, as proposed by the bill.
Figure 1.3: Comparison of key features of new law and current law
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The expenditure threshold
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The R&D expenditure threshold is increased to $150 million
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The R&D expenditure threshold applies to eliminate the incentive component of the R&D tax offset in relation to notional deductions in excess of $100 million
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The R&D expenditure threshold is a permanent feature of the law
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The R&D expenditure threshold is legislated to cease on 1 July 2024.
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The R&D Tax Offset for small R&D entities
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R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium
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R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate of 43.5 per cent.
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The amount of a refund that an R&D entity can receive is capped at $4 million per annum
Offset amounts that relate to expenditure on clinical trials do not count towards the cap and remain refundable.
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R&D entities with aggregated turnover of less than $20 million are entitled to a tax refund for any R&D tax offset they receive in excess of their income tax liabilities
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The R&D Tax Offset for large R&D entities
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R&D entities with aggregated turnover of $20 million or more are entitled to an R&D tax offset equal to their corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure
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R&D entities with aggregated turnover of $20 million or more are entitled to a non-refundable R&D tax offset at a rate of 38.5 per cent.
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Source: Explanatory Memorandum, p. 9.
Detailed explanation of the new law
Increasing the expenditure threshold
1.30
As per the EM, the $50 million increase will allow entities to claim additional amounts of concessional tax offsets on R&D activities, and promote large R&D entities to continue to engage in these activities when their expenditure exceeds $100 million.
1.31
The current law provides that the expenditure threshold will cease on 1 July 2024 and requires the government to conduct a review of the threshold after 5 March 2020. The bill repeals this requirement and makes the threshold a permanent feature of the law.
The refundable R&D tax offset for small R&D entities
1.32
An R&D entity with aggregated turnover of less than $20 million for an income year is generally entitled to a refundable tax offset equal to their corporate tax rate plus 13.5 per cent.
1.33
This refundable offset does not apply to an R&D entity controlled by one or more exempt entities. These R&D entities are instead entitled to the non‑refundable R&D tax offset available to R&D entities with aggregated turnover of $20 million or more.
1.34
Only the first $4 million of any R&D tax offset is a refundable tax offset, and any excess amount must be carried forward as a non‑refundable tax offset. Notwithstanding this, amounts of the R&D tax offset arising from R&D activities that form part of a clinical trial do not count towards the cap and, hence, may be included in a refundable tax offset.
1.35
The government's objective with this exemption is to incentivise clinical trials that have the potential to demonstrate net improvements to health outcomes.
Intensity-based R&D tax offset for large R&D entities
1.36
R&D entities with aggregated turnover of $20 million or more for an income year are entitled to an R&D tax offset equal to their corporate tax rate plus marginal intensity premiums determined with reference to the R&D intensity of their R&D expenditure on an incremental basis.
1.37
The intensity premiums apply to notional deductions with a range of R&D intensity for R&D expenditure where notional deductions are expressed as a proportion of the R&D entity's total expenses.
1.38
To calculate the R&D tax offset, a large R&D entity must determine its R&D intensity. The R&D intensity is the proportion of the R&D entity's total expenses spent on R&D expenditure for the income year. This formula is shown in Figure 1.1 below.
1.39
This formula intends to provide a higher rate of support for incremental R&D expenditure to entities that devote a significant portion of their overall operations to eligible support under the RDTI. Notional deductions in excess of the $150 million expenditure threshold do not attract an intensity premium and are not counted for the purposes of calculating an R&D entity's R&D intensity.
1.40
Once an entity's R&D intensity is determined, the following intensity thresholds, shown in Table 1.4, are applied.
Figure 1.5
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1
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Notional deductions representing up to and including 4 per cent of total expenses
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4.5 percentage points
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2
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Notional deductions representing greater than 4 per cent and up to and including 9 per cent of total expenses
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8.5 percentage points
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3
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Notional deductions representing greater than 9 per cent of total expenses
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12.5 percentage points
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Source: Explanatory Memorandum, p. 13.
Schedule 2—Enhancing the integrity of the R&D Tax Incentive
Summary of the new law
1.41
Per the EM, Schedule 2 of the bill aims to enhance the integrity of the RDTI by ensuring that R&D entities cannot obtain inappropriate tax benefits and by clawing back the benefit of the RDTI to the extent an entity has received another benefit in connection with an R&D activity. It does this through:
extending the general anti‑avoidance rules in the tax law to R&D tax offsets directly;
making the rate at which the offset is recouped more accurate in situations where the offset would otherwise result in an additional or double benefit; and
making that rate at which deductible balancing adjustment amounts incorporate the RDTI more accurate.
Figure 1.6
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Schemes to obtain an R&D tax benefit
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The Commissioner may also deny a tax benefit in the form of an amount of a refundable or non-refundable R&D tax offset that an R&D entity seeks to obtain from a tax avoidance scheme.
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The Commissioner may deny a tax benefit in the form of a deduction or notional deduction that an R&D entity seeks to obtain from a tax avoidance scheme.
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The uniform clawback rule
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Recoupment amounts and feedstock adjustments give rise to an amount of assessable income equal to the grossed-up value of the incentive component of associated amounts of R&D tax offset.
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Recoupment amounts are subject to a standalone tax of 10 per cent
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One third of feedstock adjustments are included in an R&D entity's assessable income.
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An amount is included in the assessable income of the R&D entity that received or is entitled to the R&D tax offset in relation to a recoupment amount or feedstock revenue received by a related entity.
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In cases involving related entities, the entity receiving a recoupment is subject to recoupment tax.
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In cases involving related entities, the R&D entity entitled to the R&D tax offset is subject to a feedstock adjustment if the related entity receives feedstock revenue.
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Balancing adjustments for R&D assets
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The R&D entity's assessable income is increased by an amount equal to the grossed-up value of the incentive component of the associated amounts of R&D tax offset.
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For an R&D asset held only for R&D purposes where the balancing adjustment amount is included in the R&D entity's assessable income – the amount is generally increased by one third.
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For an R&D asset held partially for R&D purposes where the balancing adjustment amount is included in the R&D entity's assessable income – the R&D component of the amount is generally increased by one third.
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Source: Explanatory Memorandum, p. 23.
Detailed explanation of the new law
Schemes to obtain an R&D tax benefit
1.42
Part 1 of Schedule 2 explicitly extends the concept of tax benefits in the general anti-avoidance rule in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to include the R&D tax offset. These amendments allow the Commissioner of Taxation (the Commissioner) to apply Part IVA to prevent R&D entities from being able to obtain tax benefits by entering into artificial or contrived arrangements to access a non‑refundable or refundable R&D tax offset.
1.43
Part IVA of the ITAA 1936 applies in situations where a scheme or arrangement is entered into in order to obtain a tax benefit. This allows the Commissioner to cancel the relevant tax benefit where the conditions under Part IVA are satisfied.
The uniform clawback rule
1.44
Part 2 of Schedule 2 to the bill remakes and consolidates subdivisions 355-G and 355-H of the ITAA 1997 (about the clawback of R&D recoupments and feedstock adjustments respectively) into a new subdivision 355-G. This subdivision also introduces a new uniform clawback rule that applies for recoupments, feedstock adjustments and balancing adjustment amounts that are included in an R&D entity’s assessable income. The amendments ensure that an R&D entity must disgorge the entire benefit of an R&D tax offset to the extent it (or a connected entity or an affiliate entity where appropriate) receives a recoupment amount, feedstock adjustment or assessable balancing adjustment because of the offset.
Catch-up rule for R&D balancing adjustments
1.45
The amendments introduce a new catch-up rule for R&D assets. This rule provides an additional deduction to R&D entities when a deductible balancing adjustment amount arises for an R&D asset.
1.46
The catch-up rule mirrors the uniform clawback rule but operates in reverse, providing a deduction in lieu of an amount of R&D tax offset forgone rather than including an amount in assessable income.
1.47
As with the clawback amounts for balancing adjustments, there are four different catch-up amounts to cover R&D assets either wholly or partially used for R&D, assets held by R&D entities and those held by R&D partnerships. The catch-up amounts reflect the amount an R&D entity can ordinarily deduct for the balancing adjustment event.
1.48
The catch-up amount rules replace provisions of the current law that sought to estimate the value of the R&D tax offset forgone or replace it with a new R&D tax offset entitlement, neither option giving rise to an accurate catch-up.
Schedule 3—Improving the administration of the R&D Tax Incentive
Summary of the new law
1.49
Schedule 3 seeks to improve the administrative framework supporting the RDTI by making information about R&D expenditure claims transparent, enhancing the guidance framework and streamlining administrative processes. A comparison of the current law and new law are shown in Table 1.6 below.
Figure 1.7
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Transparency of R&D claimants and activities
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As soon as practicable after the period of two years following the end of the financial year, the Commissioner must publish information about the R&D entities that have claimed national deductions for R&D activities, including the amount claimed.
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No equivalent.
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ISA determinations
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The Board of ISA may also make determinations about the circumstances and ways in which it will exercise its powers, or perform its functions or duties in relation to the Incentive. These determinations are binding on the Board of ISA.
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The Board or ISA may make findings specific to an R&D entity's circumstances, including whether certain activities of the entity are R&D activities.
Findings are binding on the Commissioner.
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ISA delegations
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The Board of ISA and its committees may delegate their powers to any member of the Australian Public Service staff assisting them.
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The Board of ISA and its committees may delegate their powers to SES employees assisting them.
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Extensions of time
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The Board's ability to grant an extension of time is subject to a cap of three months on the total extension available, unless the extension is granted to allow an applicant to wait for the outcome of a separate pending decision.
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The Board of ISA must grant extensions of time for registrations and the provision of information of up to 14 days if it is necessary and may grant a longer period if an applicant's ability to meet the deadline is impaired by events outside the applicant's control.
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Source: Explanatory Memorandum, p. 43.
Detailed explanation of the new law
Transparency of R&D claimants and expenditure
1.50
Two years after the relevant income year, the Commissioner is required to publish information about the R&D activities of R&D entities claiming the R&D tax offset. The government states this will improve public accountability for R&D claimants and encourage voluntary compliance with the program, while balancing these objectives against the potentially commercially sensitive nature of the information being published.
Innovation and Science Australia determinations
1.51
The Board of ISA may, by notifiable instrument, make a determination about how it will exercise its powers, and perform its functions and duties. However, a determination cannot relate to the exercise of powers, or the performance of functions or duties, in a particular case or in relation to a particular R&D entity.
1.52
The EM states that determinations seek to augment the existing program guidance by allowing the Board of ISA to publicly state its position on the application of its functions and its interpretation of the legislation, including the definition of R&D activities, the definition of clinical trials or any other administrative matters where specific guidance would reduce the compliance burden for R&D entities.
1.53
The EM states this is intended to make compliance easier for R&D entities, as they will be able to better understand what is required to demonstrate eligibility for the R&D Tax Incentive.
Innovation and Science Australia delegations
1.54
The Board of ISA and its committees may delegate some or all of their functions to members of the Australian Public Service staff assisting the Board. The expansion of the delegations powers allows additional staff to be delegated responsibility for a number of administrative program tasks.
1.55
The EM states the current limit on the delegation power has proved to be impractical and a significant barrier to the Board of ISA carrying out its functions necessary to the operation of the RDTI.
Extensions of time
1.56
Extensions of time granted under the Industry Research and Development Act 1986 (the IR&D Act) may relate to an application to register R&D activities, provide further information requested by the Board of ISA, a form to continue registration as a research service provider or an application for review of a reviewable decision. An extension will apply on top of the time limits in the IR&D Act.
1.57
The Board of ISA must not grant extensions of time under the IR&D Act in excess of three months. Restricting extensions to three months mitigates the risk that long extensions granted by the Board of ISA result in applications being accepted a number of years after the relevant R&D activities are undertaken.
Government consultation
1.58
As part of the Turnbull Government's National Science and Innovation Agenda, the government undertook a review of the RDTI in 2016 (the 'Three Fs' Review). The panel and supporting taskforce conducted consultations with companies, peak industry groups, research organisations, reference groups, and policymakers and sought submissions. Following the Three Fs Review, the Department of the Treasury undertook public consultation on its draft bill which was developed in response to the recommendations to the Three Fs Review.
1.59
It is not apparent that the government undertook further consultation to inform the changes to the 2018 bill, which appear in the current bill.
Commencement of the bill
1.60
All of the amendments made by the bill commence on the first 1 January, 1 April, 1 July, 1 July, or 1 October to occur after the day the Act receives Royal Assent.
Financial impact
1.61
Per the EM, the amendments are estimated to have a gain to the budget of $1.8 billion over the forward estimates period; i.e. 2019‑20 to 2022‑23, included. Table 1.7 below shows this breakdown by fiscal year.
Table 1.1:
Source: Explanatory Memorandum, p. 3.
Regulatory impact
1.62
The EM states that the bill is expected to result in an overall compliance cost increase, arising from minor changes to the registration and claims processes, as well as the initial adjustment to the new program. It estimates the total average annual regulatory costs for businesses to be $26.3 million.
Legislative scrutiny
1.63
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) drew Senators' attention to the comments it made in relation to the prior bill; i.e. Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018. These comments are discussed below.
Retrospective application
Committee's commentary
1.64
The Scrutiny Committee requested the Treasurer's advice as to why it is necessary to retrospectively apply proposed amendments under Schedules 1 and 2 to income years commencing on or after 1 July 2018, or to tax benefits derived on or after 1 July 2018, and whether any persons would be detrimentally affected by the retrospective application.
Ministerial response
1.65
The reforms were announced on 8 May 2018 as part of the 2018-19 Budget in response to the 2016 Review of the R&D Tax Incentive. The reforms generally apply to income years commencing on or after 1 July 2018. Affected taxpayers were aware of the reforms and the potential impact the reforms would have on the scope of the program from the date of the Budget announcement. An Exposure Draft of the legislation implementing the reforms was also released for public consultation prior to the 1 July 2018 application date.
1.66
While the reforms may be important considerations for some taxpayers from 1 July 2018, taxpayers will only be expected to register for the program and lodge income tax returns under the reforms following the end of the income year, from 1 July 2019.
Broad delegation of administrative powers
Committee's commentary
1.67
The Scrutiny Committee considered that it may be appropriate to amend the bill to require that the Innovation and Science Australia Board, or a committee appointed to advise the board, be satisfied that persons performing delegated functions and exercising delegated powers have the expertise appropriate to the function or power delegated, and requests the Treasurer's advice in relation to this matter.
Ministerial response
1.68
ISA is authorised to approve delegations under existing legislation and satisfy itself that persons performing delegated functions have the expertise appropriate to the function delegated as part of its approval processes.
1.69
The proposed functions delegated under the amended powers include high‑volume, low-risk functions, such as granting extensions of time to submit applications and requesting information on an application.
1.70
The Assistant Treasurer concluded that he did not consider an amendment to be necessary, or that it would contribute to the effective administration of the program in light of ISA's existing and proposed processes that support delegations.
Conduct of the inquiry
1.71
The committee advertised the inquiry on its website and wrote to relevant stakeholders and other interested parties inviting submissions by close of business 6 March 2020. The committee received 93 submissions, which are listed at Appendix 1.
1.72
The committee held a public hearing in Canberra at Parliament House on 29 July 2020.
1.73
A list of witnesses who appeared at each hearing can be found at Appendix 2.
Budget 2020-21—JobMaker Plan—Research and Development Tax Incentive—supporting Australia’s economic recovery measure
1.74
On 8 October 2020, the government announced, as part of the 2020-21 Budget further enhancements to its 2019-20 MYEFO measure Better targeting the research and development tax incentive—refinements to support business R&D investment in Australia and help businesses manage the economic impacts of the COVID-19 pandemic and assist in the economy's recovery.
1.75
The new measure, JobMaker Plan—Research and Development Tax Incentive—supporting Australia’s economic recovery, supersedes this bill's provisions significantly modifying the proposals it contains. The committee has completed its report based on the consultations and input from stakeholders related to the 2019 bill though it acknowledges the impact of the Budget's measure on this bill inquiry as part of its committee view in chapter two.
Acknowledgements
1.76
The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and attended public hearings to provide evidence.