Australian companies will lose out against against foreign players
and may have to lay off workers if the Abbott government succeeds in
passing laws that would cut research and development tax breaks for big
companies, experts say.
The federal government has struck a deal with the Palmer United Party in attempt to pass the laws, which were first introduced by the former Labor government.
The original proposal would have affected about 15 to 20 of Australia’s largest companies, such as Telstra, BHP and Rio Tinto. Tax experts say the changes will now impact another 50 companies including pharmaceutical giants such as CSL.
The government’s original proposal was to reduce tax offsets by 1.5 per cent and abolish R&D tax incentives to companies with a yearly turnover of $20 billion or more, a measure that would save a government desperate to reduce its budget deficit $1.1 billion over four years.
While the measures passed the lower house at the end of 2013, it struggled to pass through the Senate, opposed by both Labor and the Greens.
The government agreed to amendments from PUP which now change the conditions upon which the tax break can be claimed. Under the deal with the PUP, the amended legislation states that the laws will apply retrospectively – backdating to July 1 last year – and that there will now be a reduced tax offset rate for companies with expenditure above $100 million.
KPMG’s head of R&D, David Gelb, said the changes would not impact targeted revenue collection, but would bring pharmaceutical and manufacturing industries into the mix of companies now facing limited R&D tax concessions.
“While the number of companies might seem to be insignificant, companies in these industries are the ones that employ a lot of the people in research,” he said.
“It may unfortunately discriminate against Australian companies as there will be foreign companies that get their full entitlements for R&D tax concessions.”
An Australian company spending $150 million on R&D, whose claim is now limited to $100 million, of which the tax reduction is $10 million, is disadvantaged against a foreign company spending $80 million on R&D and getting the full $8 million tax reduction, he said.
“As they move into next year’s budget they will have no choice but to reduce next year’s headcount and take their R&D offshore where there are better incentives,” he said.
He said the decision to apply the laws retrospectively was “unprecedented globally”.
“Companies have already spent the money and done the R&D on basis they will have that entitlement there,” he said. “Each company will have to make their own decision as to whether they reduce headcount between now and end of the year.”
Mr Gelb said the Abbott government would have been better off examining these issues as part of its innovation review and tax white paper. “They should have put things on hold until there had been proper consultation,” he said. “There’s been no consultation and industry is entitled to feel hard done by.”
The changes come as other countries increase tax incentives aimed at drawing new investment including patent box regimes in Britain.
This news story is reprinted from www.smh.com.au
Read more details on chartered accountants sydney .
The federal government has struck a deal with the Palmer United Party in attempt to pass the laws, which were first introduced by the former Labor government.
The original proposal would have affected about 15 to 20 of Australia’s largest companies, such as Telstra, BHP and Rio Tinto. Tax experts say the changes will now impact another 50 companies including pharmaceutical giants such as CSL.
The government’s original proposal was to reduce tax offsets by 1.5 per cent and abolish R&D tax incentives to companies with a yearly turnover of $20 billion or more, a measure that would save a government desperate to reduce its budget deficit $1.1 billion over four years.
While the measures passed the lower house at the end of 2013, it struggled to pass through the Senate, opposed by both Labor and the Greens.
The government agreed to amendments from PUP which now change the conditions upon which the tax break can be claimed. Under the deal with the PUP, the amended legislation states that the laws will apply retrospectively – backdating to July 1 last year – and that there will now be a reduced tax offset rate for companies with expenditure above $100 million.
KPMG’s head of R&D, David Gelb, said the changes would not impact targeted revenue collection, but would bring pharmaceutical and manufacturing industries into the mix of companies now facing limited R&D tax concessions.
“While the number of companies might seem to be insignificant, companies in these industries are the ones that employ a lot of the people in research,” he said.
“It may unfortunately discriminate against Australian companies as there will be foreign companies that get their full entitlements for R&D tax concessions.”
An Australian company spending $150 million on R&D, whose claim is now limited to $100 million, of which the tax reduction is $10 million, is disadvantaged against a foreign company spending $80 million on R&D and getting the full $8 million tax reduction, he said.
“As they move into next year’s budget they will have no choice but to reduce next year’s headcount and take their R&D offshore where there are better incentives,” he said.
He said the decision to apply the laws retrospectively was “unprecedented globally”.
“Companies have already spent the money and done the R&D on basis they will have that entitlement there,” he said. “Each company will have to make their own decision as to whether they reduce headcount between now and end of the year.”
Mr Gelb said the Abbott government would have been better off examining these issues as part of its innovation review and tax white paper. “They should have put things on hold until there had been proper consultation,” he said. “There’s been no consultation and industry is entitled to feel hard done by.”
The changes come as other countries increase tax incentives aimed at drawing new investment including patent box regimes in Britain.
This news story is reprinted from www.smh.com.au
Read more details on chartered accountants sydney .
