Suspend changes to Australia's R&D Tax Incentive, use it to save tech jobs during COVID-19
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The Government of Australia's proposed changes to the Research and Development (R&D) Tax Incentive* risk negatively impacting the financial outcomes of the majority of Australia's early-stage technology startups. These changes are currently being reviewed by a Senate Committee**.
Now, as a result of the COVID-19 pandemic sweeping the world, there is an extreme and unprecedented new level of urgency required to preserve the financial viability of Australia's high growth technology industry.
According to the government's own figures***, the estimate for the 2017/18 innovation benefit paid via the Industry R&D Tax Measures totaled $3.14bn, a tiny rise of only 1% on the previous year.
Most early-stage Australian technology startups rely to some meaningful degree on the R&D Tax Incentive for their financial survival. It frequently facilitates their progress from early, cash depleting startups to successful, cash generative companies that go on to create significant employment growth for Australia and highly valuable IP-derived export dollars. This is a well-worn path followed by generations of successful startups.
As the COVID-19 pandemic expands, anecdotally many Australian early stage technology companies are already experiencing a severe and sudden loss of revenue. This is rapidly depleting their balance sheets and threatening their ability to retain staff and continue as a going concern. Government support is urgently required if mass failures and layoffs are to be avoided.
Therefore, we urgently call on the Government of Australia to act:
1. As part of the upcoming Federal Budget, confirm the six-month suspension of The Senate Economics Legislation Committee Inquiry, to allow the economic impact of COVID-19 to be fully assessed before any R&D Tax Incentive legislative changes are recommended;
2. Immediately confirm a six-month moratorium on ATO claim-back proceedings against past R&D Tax Incentive recipients, to maximise the survival likelihood of these entities while the economic impact of COVID-19 is at its most extreme;
3. As part of a broader economic stimulus package, for recipients with under $20m in revenue, use the R&D Tax Incentive framework to avoid mass layoffs and preserve employment by fast tracking a cash injection to Australia's early-stage technology startup community.
One possible though not requisite framework for executing point 3 above, might be: allowing 2018/19 R&D Tax Incentive recipients to lodge an early claim for the 2019/20 year equal to the past year's claim. Claimants can then receive a fast-track payment by 30 April 2020, including a one-off incentive that doubles the first $200,000 payment for each recipient as a means of ensuring continued employment during the COVID-19 pandemic. Any overpayments, where the estimated claim exceeded the actual claim, could be recouped by the ATO after lodgement of 2019/20 annual returns.
If Australia's early-stage technology industry is to avoid mass failures and layoffs during the COVID-19 pandemic, the above three actions must be adopted and prioritised by the Government of Australia as a matter of urgency.
* Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019
** The Senate Economics Legislation Committee Inquiry into the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019
*** Science, Research and Innovation Budget Tables Snapshot 2017-18
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