R&D Expert Panel enters final feedback and recommendations phase

With submissions in response to the discussion paper for the Strategic Examination of Research and Development due last Friday, 11 April 2025, the expert panel will now start to seek further feedback on recommendations and policy options, and deliver the final action plan of recommendations to government.

With a year-long strategic review originally announced in the Federal Budget 2024-25, it is to be expected that the recommendations will be delivered to the new government formed after 3 May 2025 by the end of the calendar year.

The next stages can be expected to encompass exploring policy directions, developing conclusions, and making initial recommendations and policy options. These will be tested by consulting and iterating on conclusions, recommendations and policy options. This will result in the final action plan and engaging key players in next steps.

Whilst the discussion paper canvassed a wide range of R&D issues which will also need to be considered by the panel, RSM made a substantial submission focused on the importance and functions of the R&D Tax Incentive (RDTI) which forms a key cornerstone of Australia’s R&D ecosystems and must remain so as part of any further reforms.

Broadly, to pursue R&D, business leaders demand financial certainty, as well as collaborative and non-contentious regulatory behaviours. To facilitate these objectives, we believe that an impactful R&D system should comprise of a defined innovation policy framework within which all future new policies should align. This framework should encompass each of the following complementary and inter-dependent strands:

• An industry-agnostic and democratic indirect tax incentive, currently being the RDTI regime, which allows all eligible company entities to claim increased tax benefits where it seeks to significantly invest in defined innovation and R&D efficiencies.
• Direct targeted funding or grants that are fair, transformative and efficient in distribution and use, albeit targeted at priority areas that can contribute most effectively to the long-term well-being of Australia and its citizens, and
• Effectively assisting both businesses and academia with the next steps of commercialising ideas and products generated by the above on a worldwide basis.    

Each individual strand should also each be incentivised to develop, build and maintain long-term integrated relationships and ecosystems between industry and academia/ universities / other research bodies.

We have urged the expert panel to contemplate a potential role for a bipartisan and independent body as a relevant need to future-proof our innovation and commercialisation needs. Without one, who is to say that the very outcomes implemented by the result of this review would not themselves be shelved in the future after a further change in Government?

Such a bipartisan body could have oversight of an innovation framework, be tasked with a statutory aim of ensuring that Australia achieves set desired R&D aims as a percentage of GDP, provide neutral or non-political views on incentives introduced by different stripes of governments, and make recommendations on whether to retain or retire them in a later sitting.

In terms of the granular detail, most submissions will be made public in due course, and key details of the RSM submission encompassed the following:

• The strategic review should be underpinned by a comparative analysis of current global innovation incentives and the panel members should hold frank discussions with key stakeholders in MNEs on their views of what would restore Australia’s innovation influence given a current perception of uncompetiveness.
• The expert panel should ensure that the long-term errors made in measuring the costs of the RDTI regime are rectified – these costs should not reflect the net tax benefit rather than the gross offset rates and should incorporate some discount for the impact on franking credits and reduced future tax paid by shareholders.
• We consider that the arbitrary and inhibiting R&D $150 million threshold is statutorily redundant since the Pillar 2 top up tax rules will now form a more appropriate statutory and commercial threshold, under which MNEs will choose to limit their R&D claims to remain within the 15% effective tax rate threshold.
• The need to address a lack of software specific R&D policy settings despite being a pervasive aspect of almost all innovation activities. Although we do not believe there should be a separate software regime, certain definitions and policy settings could be adapted to address practical and legislative hurdles that currently exist.
• The urgent need to increase the refundable RDTI threshold, and for simplicity to legislatively match the base rate entity threshold.
• Revisit the concepts of quarterly refunds and the collaboration premiums recommended by the 2016 R&D review Triple F report.
• Consider whether the effective exclusion of construction costs to test new techniques and methodologies in situ from the RDTI regime remains appropriate.
• Allowing academic sponsorship costs and identifying IP issues in university collaborations that prevent R&D claims.

RSM also took the opportunity to raise certain legislative issues that could ensure the RDTI regime remains globally fit for purpose – we believe the panel should consider:

• Whether the biased and complex threshold feature is in practice achieving the aims of the highly academic concept of additionally, as articulated in the Triple F report. If not, we believe that the non-refundable R&D tax offset should revert to a fairer and higher single tier rate which is distributed across all eligible taxpayers in a tax equitable manner.   
• Recommending statutory fixes for the interaction of the RDTI regime with the tax consolidation regime, and additional regulatory guidance on the associate paid issue.
• Introducing a ‘Commissioner’s discretion component’ to the current 92-day limitation on amendment to RDTI registrations.
• Addressing the mismatched grant clawback outcomes for so-called matching grants after the 2021 re-drafting made the statutory cap largely redundant.   
• The need for simplified substantiation requirements for smaller R&D entities. 

Finally, we would welcome progress on the following recommendations made by the Board of Taxation in 2021 which to date appear to have not been considered or implemented:

• The effective extension of the Justified Trust regime to the RDTI regime (recommendation 6)
• Publication of compliance and integrity activities by both administrators (recommendation 10)
• The implementation of Alternative Dispute Mechanisms for R&D claims which could involve both regulatory bodies (recommendation 11).

As the year progresses, RSM looks forward to hearing more from the expert panel as they seek to formulate an action plan that will drive Australia’s R&D capabilities to greater heights.