R&D Tax Incentive reform delivers positive news for clinical trials and intensity premium

AusBiotech

Canberra, Australia – Tonight’s Federal Budget has revealed a comprehensive plan for “better targeting the research and development tax incentive” (R&DTI), including:

  • clinical trials exempted from a $4 million cap for the refundable component;
  • no lifetime cap for the refunds;
  • a coupling of the incentive to each company’s tax rate; and
  • for larger companies, a graduating reward premium for higher intensity and an increased cap.

AusBiotech – Australia’s life sciences industry organisation – said it is relieved by Federal Government’s careful approach to imposing a much-feared annual cap, with the exemption of clinical trials from the $4 million cap on the annual refundable amount a welcome development.

AusBiotech CEO, Mr Glenn Cross, says: “AusBiotech welcomes the recognition of the critical role that R&D expenditure plays in clinical trials for developing life-changing and saving medicines and medical devices.”

“By exempting clinical trials from a $4 million cap and encouraging higher intensity in R&D, Australia will keep its hard-won momentum in clinical trials and continue its growth in commercialising medical research.”

“We are pleased that the Government understands the role the R&DTI plays in the development of medical technology, biotechnology and pharmaceuticals (MBTP), with the sector one of Australia’s strongest and most competitive opportunities for growth,” said Mr Cross.

“AusBiotech notes that the anticipated lifetime cap for companies claiming the refundable component did not eventuate and this too is a welcome development.”

For companies claiming the non-refundable offset, a graduating premium will be introduced to incentivise higher R&D intensity, and the $100 million cap will be elevated to $150 million.

Claimants will be able to add a premium to their corporate tax rate of four – 12.5 percent (currently 8.5 per cent), depending on R&D intensity (proportion of R&D expenditure over total annual expenditure), thus giving companies with intensity above five per cent a higher offset than now available.

A move to link the R&DTI benefit to each company’s tax rate means that new legislation is not needed each time the corporate tax rate changes and allows for a fixed premium above other tax deductions as the Enterprise Tax Plan takes effect. 

The Government said it is “committed to driving cutting edge research and development in Australia by both supporting small innovative firms and rewarding larger businesses that do more to invest in developing new products, processes and services that help make Australia more competitive and create more jobs … the Government will reform the program, sharpening its focus on additional eligible business R&D while ensuring its ongoing fiscal affordability.”

The Government also outlined plans for “integrity and affordability” through increased resourcing for administrators and “greater transparency around who is claiming the R&DTI will promote public accountability for those benefitting from taxpayer support”, as well as improved guidance material on eligible R&D activities. A three-month limit will be imposed on extensions.

The R&DTI has been successful in helping attract more investment in and fostering a strong Australian medical technology, pharmaceutical and life sciences R&D sector, which encourages long-term investment in Australia that creates highly-skilled jobs, attracts clinical research and grows the economy.

The Budget also includes $248 million to allow more clinical trials to occur in Australia and support international collaboration. In addition, the Government is developing a feasibility study to create a one stop shop for clinical trials. These initiatives will make it easier for companies, sponsors and investigators to navigate the system and invest in clinical trials across Australia.

AusBiotech warmly welcomes the initiative to consider the feasibility of creating a one-stop shop for clinical trials, as this has been the focus of advocacy efforts for almost a decade. The AusBiotech Clinical Trial Advisory Group (ABCtag) will be active over the coming months to support this initiative.

Since the R&DTI program began, Australia has experienced a five per cent annual growth in clinical trials.

A more comprehensive member update will be sent to member tomorrow.