First published in AusVeg Weekly Update Tuesday 15 December 2015

Malcolm Turnball’s Innovation Statement and the latest Taxpayer Alert, what does this mean for Vegetable Growers when claiming of the R&D Tax Incentive?

Turnball’s Innovation Statement

The Government’s much anticipated National Innovation and Science Agenda (NISA) released last week, is seen as a significant cultural change in Australian commerce that will aspire Australians to be innovative.

“Innovation is critically important to every sector of the economy and the Government’s tax and business incentives under the NISA will encourage smart ideas to encourage innovation, risk taking and build an entrepreneurial culture in Australia”, Treasurer the Hon. Scott Morrison announced.

Pitched as a blueprint for transforming the Australian economy, the Innovation Statement unveiled a $1.1 billion plan to nurture and generate innovation with 24 measures across 11 different Government portfolios.

Whilst there had been speculation circling in the lead up to the release of the Innovation Statement no changes were delivered to the current R&D Tax Incentive program. This has provided some relief and certainty to business that this critical funding tool will continue for all levels of business providing integral support to undertake R&D in Australia.

Interestingly, there was no mention within the Innovation Statement on the previous budget measure to reduce the R&D Tax Offset by 1.5% which remains stalled in the Senate after several attempts to pass it had failed. Stability of innovation policy at this time is welcomed and will allow companies to continue to plan to undertake R&D in Australia to boost their competitiveness and agility in an increasingly competitive global market.

The Innovation Statement did however propose to form a new independent body, Innovation and Science Australia (ISA), of which would conduct a review of the R&D Tax Incentive and potentially make recommendations for changes to the program in the future.

Further, and in support of the Innovation Statement, the December release of the Australian Industry Report 2015 provided discussion on the role and importance of R&D as the main vehicle for innovation growth. The Report notes the derived spillover benefits through undertaking R&D, specifically the voluntary exchange and involuntary leakage of useful technological information that occurs between businesses.

Analysis contained within the Report, of Australian and international studies into the impact of government-funded R&D tax incentives, claims that “…R&D is not persistent enough to be sustained over the long term without strong turnover or external stimulants such as spillovers and tax incentives”.

Both the Innovation Statement and the Australian Industry Report 2015 provide strong indicators by the Turnball Government that good innovation policy is top of their agenda in order to increase SME funding and investment.

Taxpayer Alert 2015/3

On the 15 October 2015, the Australian Taxation Office (ATO) and AusIndustry jointly issued Taxpayer Alert 2015/3 entitled Accessing the R&D Tax Incentive for ineligible broad acre farming activities.

Vegetable growers, whilst not immediately blanketed under the Taxpayer Alert, have valuable information to glean from the specific concerns expressed within the Alert and their active claiming of the R&D Tax Incentive.

The key concerns voiced, and holding strong for vegetable growers, relate to ensuring that claimed R&D activities: 

  1. Demonstrate the required systematic progression of work (which requires a hypothesis, experiment, observation and evaluation leading to logical conclusions);
  2. Are not merely involving the use of established products or existing methodologies;
  3. Have a significant purpose of generating new knowledge;
  4. Are confined to an appropriate size of the farming area for new knowledge generation as opposed to commercial production; and
  5. Are undertaken on own behalf.

Taxpayers can look forward to further direction to be soon provided by AusIndustry in the form of a Specific Issue Guidance product. Assistance provided through such a product would seek to demonstrate the correct identification and documentation of eligible R&D activities.

Vegetable Growers and the claiming the R&D Tax Incentive

As an innovative and agile Vegetable Grower you would be constantly faced with technical issues that often lead to new knowledge generation for the industry at large. Examples of innovation may be drawn from your activities looking at: disease resistance; plant breeding; crop rotation; and water saving initiatives. Whilst the above activities may be looked upon as ‘just getting on with business’ in order to be more competitive, you may in fact be eligible to claim the R&D Tax Incentive.

Importantly, through gaining access to the benefits of the R&D Tax Incentive this can lead to the further funding of your activities and an accelerated return on your investment.

Before being entitled to claim the R&D tax incentive, it is requirement that registration is made for each year of income in which eligible R&D activities are undertaken and their corresponding R&D expenditure is incurred.

Registration must be lodged with AusIndustry no later than 10 months after the end of a company’s financial year.