Biotech industry astonished as government moves on plan to cut R&D incentive

Despite a Senate Inquiry’s recommendation to examine the impacts before actioning, newly proposed cuts to the Research and Development Tax Incentive (RDTI) Bill were tabled without notice, astonishing the biotech industry. The vast majority of SMEs and companies in life sciences will be disadvantaged in their claims if the proposed changes go ahead.

As the most critical policy for the industry, the proposed changes have the potential to significantly damage the sector, and ultimately impact its capacity to deliver new, innovative treatments to Australian patients.

Despite the industry’s strong and united voice at the 2018 Senate Inquiry, and the Senate Economics Legislation Committee’s recommendation to fully understand the impacts before proceeding, the newly proposed changes have not taken the impact on life sciences into consideration.

AusBiotech is imminently launching new sector-specific modelling, illustrating for the first time the disproportionately negative effect that the previously proposed RDTI changes would have on the life sciences sector. The new report R&D Tax Incentive: Additionality and spillovers for the life sciences industry report shows that 61 per cent of respondents advised that the proposed changes would not only affect their expenditure on research and development (R&D) but would also threaten the sustainability of their businesses.

Lorraine Chiroiu, CEO, AusBiotech says, “AusBiotech is deeply concerned that the RDTI Bill has been reintroduced, despite the Senate Committee’s recommendations to ‘defer consideration’ of the Bill until ‘further examination and analysis of the impact is undertaken’. The Australian life sciences industry has been caught in the cross-fire. The unique environment we work in, and the life-saving and life-improving benefits we bring, must be better considered before these changes cause long-term damage to the industry.”

Proposed changes in the reintroduced RDTI reforms include:

• Fixing the rate of the refundable R&D tax offset to 13.5%
  This change will immediately hit biotech SMEs with a 2.5 percent loss of refund if passed – a move both significant and material: for each $1 million of expenditure, the loss will be $25,000 that has to be raised by alternate means.
• A simplified R&D Premium for conducting ‘high intensity’ R&D for companies with an annual turnover of more than $20 million
  Despite being simplified from the last Bill, the intensity measure still reduces the support for all but a few companies. It will prove hard to estimate in advance, which undermines the certainty that most companies have traditionally had in relation to future RDTI calculations.
• An increase in the R&D expenditure threshold rate from $100 million to $150 million
  While this is welcome, it is only applicable to a few companies, with the potential addition of one or two more in years to come.
• Claim gap set at $4 million, with an exemption for clinical trials
  While the protection of clinical trials is welcome, it has been tempered by the high degree of confusion that remains about the definition of “clinical trial” and which expenditure would be eligible for the RDTI under the proposed changes.
  

Life sciences is a significant industry for Australia: its research offers life saving and life improving technologies, as well as bringing economic benefits and growth to the country. Australia is already sliding down global innovation rankings, and these proposed changes further risk Australia losing its edge in life sciences in a globally-competitive environment.

Download the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019.

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