Cuts to Australian R&D tax offset voted down by Senate

A proposal by the government to cut Australia's R&D tax offset rate by 1.5 percent has been defeated in the Senate, with the Labor opposition calling the move a win for innovation among local small and medium-sized enterprises.

The Australian government's proposal to cut the country's Research and Development Tax Incentive rate for companies by 1.5 percent has been defeated in the Senate.

The Senate voted on the Tax & Superannuation Laws (2014 Measures No. 5) Bill 2014, which included a proposal to introduce a broad 1.5 percent cut to the current R&D tax offset rates of 40 percent and 45 percent retroactively from July 1, 2014.

The cut had been proposed as part of the government's slew of new legislation designed as budget-saving measures to remedy the government's so-called "budget emergency".

The government estimated that the proposed changes would have resulted in savings of around AU$620 million.

However, the Labor opposition and the Australian Greens proposed an amendment to the Bill to omit the schedule containing the tax cut, which was passed in the Senate late on Monday night.

The move follows the passing in parliament on February 10 of new legislation limiting the amount for which companies can claim R&D tax breaks to AU$100 million.

Australia's Shadow Minister for Higher Education, Research, Innovation and Industry Senator Kim Carr said small to medium enterprises (SMEs) would have been "savaged" by the government's proposal, as SMEs make up more than 70 percent of the users in the R&D tax offset scheme.

"The passage of this Bill in its current form would further degrade the R&D tax incentive, which is one of the most important mechanisms available in the taxation system to foster innovation," said Carr in the Senate on Monday night. "In advanced industrial economies -- I think the argument is well worked -- innovation is the chief driver of increases in productivity.

"Without a strong innovation system, Australia cannot build a more diverse economy, and if we do not build a more diverse economy, we cannot protect living standards and we cannot ensure that prosperity is spread throughout our population," he said.

While many of Australia's tech industry players investing in R&D locally have conceded that they will not be affected by the AU$100 million R&D tax break cap, which has already passed, Carr suggested that the effect of the Bill before the Senate on Monday would be to discourage R&D investment in Australia.

"What this Bill does is undermine the small and medium-sized enterprises as well, not to mention the universities and all the other supply-chain enterprises that are affected by these proposals," he said. "It is the small and medium-sized enterprises which rely on the existence of a permanent and stable tax incentive in order to invest in R&D. This is critical to their business case as much as it is to the larger firms."

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