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Wednesday, 16 October 2002
Page: 5285


Senator GEORGE CAMPBELL (2:43 PM) —My question is to Senator Coonan, the Minister for Revenue and Assistant Treasurer. Is the minister aware of industry concerns surrounding the restrictive treatment by the Australian Taxation Office of the research and development tax concession cash offset? Is it the case that the patchwork make-up of shareholders involved in emerging companies means that the turnover threshold of $5 million and an R&D expenditure threshold of $1 million is very often hard to calculate? Can the minister confirm that a business is not eligible for the tax offset of a tax exempt entity that has 25 per cent or more control of the business conducting the R&D? Does this condition mean that companies in receipt of Commonwealth investment via the innovation investment fund may not be eligible to access the tax offset?


Senator COONAN (Minister for Revenue and Assistant Treasurer) —I thank Senator George Campbell for the question, although I do wonder about its appropriateness at this time. The R&D tax offset that has been introduced by the government is a very significant concession, effectively providing a refundable rebate of up to 37.5 per cent for R&D expenditure. Small companies—and this is very important—particularly those in tax loss, can now access the R&D tax concession as a refundable tax rebate. This will increase the cash flow of such companies when they need it most, which is of course during their initial growth phase when they do need to access it. The government considers that the R&D tax offset does strike the necessary balance between providing what is in fact a very generous concession and ensuring that its integrity is maintained.

The R&D tax offset has a number of eligibility criteria to ensure that all recipients are in fact small businesses. The $1 million maximum R&D expenditure applicable to the offset is consistent with the government's policy objective of assisting small companies. In developing this threshold, careful consideration was given to determine that the measure was effectively targeted at the intended beneficiaries. The grouping rules that form part of the eligibility criteria for the R&D tax offset and the turnover threshold rule are both designed to ensure that larger entities do not split into smaller entities and inappropriately gain access to the offset. Reliance on the general anti-avoidance provisions is considered to be an effective method of addressing the problem.

The law relating to the offset allows a maximum interest by tax exempt entities of 25 per cent. This balances the importance that is attached to this measure to assist universities and other similar institutions being involved in research and development with the Commonwealth's responsibility to ensure the integrity of the tax system is maintained. While these rules are necessary to maintain the integrity of the tax concession, I can assure Senator George Campbell that the government has ensured the complexity is as minimal as possible. In particular, the grouping rules used for the offset are based on the grouping rules for the simplified tax system so it all fits together. This way, small businesses do not have to become familiar with two different sets of rules.


Senator GEORGE CAMPBELL —Mr President, I ask a supplementary question. Will the minister assure the Senate that the ATO is not restricting access to the tax offset in order to deter companies that have applied for it in the absence of the R&D START grant fund? Is this program another casualty of the blow-out in the budget deficit? When will this government reinstate the R&D START grant fund in order to take pressure off the R&D tax concession cash offset?


Senator COONAN (Minister for Revenue and Assistant Treasurer) —I have no knowledge of the ATO restricting any application for the R&D concession. The answer that I previously gave shows in great detail that in fact it is an appropriately targeted measure and it is meeting its target.