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Industry Research and Development Amendment Bill 1999

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1998

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

HOUSE OF REPRESENTATIVES

 

 

 

 

INDUSTRY RESEARCH AND DEVELOPMENT AMENDMENT BILL 1998

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by the authority of Senator the Honourable Nick Minchin, Minister for Industry, Science and Resources).

 



INDUSTRY RESEARCH AND DEVELOPMENT AMENDMENT BILL 1998

OUTLINE

 

This Bill amends the Industry Research and Development Act 1986 ( IR&D Act ) and contains provisions to streamline the administration of the Research and Development Tax Concession scheme, with the aim of reducing compliance costs for companies. The Bill also addresses some rigidities in the procedures for company registration with the intent of allowing the Industry Research and Development Board (the Board) increased discretion in its dealings with applicants, without relaxing the restrictions on retrospective access to tax deductions.

 

The opportunity is taken at the same time to address a range of procedural and administrative issues that have become apparent in the operation of the scheme.

 

The key provisions of the Bill will:

 

·          allow companies a longer period for the lodgement of registration applications;



·          allow the Board the flexibility to require different levels of information from different classes of applicant, which would allow it to reduce compliance costs for specific classes of companies, for example small claimants;

 

·          allow the Board a limited discretion to accept late applications and to correct minor errors in registrations.  In particular, the Bill directs the Board to reconsider six specific cases where the past lack of any such discretion has prevented their applications for registration from being validly considered by the Board; and

 

·          improve service to companies applying for certification of offshore research and development by making the effective date for certificates the date on which the application was received, rather than the date of Board decision.



In addition, the Bill contains provisions which:



·          protect the integrity of the Research and Development Tax Concession scheme by clarifying the Board’s powers regarding the exploitation of the results of research and development activities and overseas expenditure on research and development; and

 

·          effect minor administrative improvements with respect to communications, Board and committee appointments, recruitment of consultants, and the Registered Research Agency scheme.

 

FINANCIAL IMPACT STATEMENT

 

This Bill provides for the Board to consider six registration applications lodged by eligible companies with the Australian Taxation Office on time, but not received by the Board until after the time allowed for making an application for registration had ended.

If, upon consideration of these applications, the Board were to decide to register all of these companies, there would be a total cost to revenue of approximately $80,000.



NOTES ON CLAUSES

 

Clause 1 - Short Title

 

This clause provides for the Act to be cited as the Industry Research and Development Amendment Act 1998 .

 

Clause 2 - Commencement

 

The provisions of the Bill will commence on the date of Royal Assent.

 

Clause 3 - Schedule(s)

 

Each Act specified in the Schedule(s) is amended as set out in the Schedule(s).

 

Clause 4 - Treatment of certain applications lodged with the Australian Taxation Office

 

This clause provides for the Board to be able to consider six companies for registration in respect of applications which were:



·          lodged with the Australian Taxation Office (instead of the Board) within the period allowed for making an application to the Board, and



·          not received by the Board until that period had expired.



While the companies listed were mistaken in lodging their applications with the Australian Taxation Office instead of with the Board, it is arguable that this mistake was not unreasonable given the joint administration of the Research and Development Tax Concession scheme by the Board and the Australian Taxation Office.

 

Clause 5 - Effect of amendments relating to members of the Industry Research and Development Board and its committees

 

Items 1, 2, 3, 4 and 5 of Schedule 1 relating to the appointment of members of the Board and committees do not affect such an appointment in force immediately before commencement.



 

Schedule 1 - Amendment of the Industry Research and Development Act 1986

 

Items 1, 2, 3, 4 and 5 - Appointment of Board and committee members

 

These Items reduce the maximum term of an appointment of appointed members of the Board from 5 years to 3.  The Minister will determine the period of an appointment of a committee member up to a maximum of 3 years.

 

These Items also direct the Minister to consider the desirability of staggering appointments to the Board.  Further, persons will not be eligible to be an appointed member if they have already served 2 consecutive terms as a member of the Board.

 

Similar provisions are also introduced by these Items relating to the appointment of committee members by the Minister.  All of the provisions of Items 1,2,3,4 and 5 have been introduced as a result of recommendations made by the Australian National Audit Office.

 

Item 6 - Consultants and others may assist the Industry Research and Development Board

 

This Item clarifies that the Board and committees may be assisted by consultants and others engaged by the Commonwealth, in addition to persons appointed and employed under the Public Service Act 1922.  It will expressly allow the Board to engage specialist technical, financial or other expertise to assist it in carrying out its duties.

 

Item 7 - Amendments to section 39B

 

The reference to the Companies Act 1981 in section 39B of the IR&D Act is replaced by a reference to the Corporations Law .

 

Item 8 - Effective date of provisional certificate

 

This Item provides that a provisional certificate for overseas research and development expenditure is deemed to take effect from the day the application was received by the Board, avoiding timing problems for companies wishing to undertake the overseas activities prior to the Board issuing a provisional certificate.  Companies are unable to claim the concessional deduction for overseas expenditures made prior to the effective date of the certificate.

 

The proposed change will not apply to provisional certificates for which an application is made before commencement. 

 

Item 9 - Power to amend or revoke provisional certificate

 

New section 39EF will allow the Board to amend a provisional certificate for overseas research and development expenditure to ensure that the maximum deduction that a company may claim as certified expenditure is 10% of total expenditure on the project of research and development activities.  If the company’s total project expenditure consists entirely of the expenditure on overseas research and development activities to which a provisional certificate relates, the Board will be able to revoke the provisional certificate.  

 

Provisional certificates are issued based on advice from the applicant company that the Australian-based components of the proposed research and development project will proceed.  The new provision ensures that the Board will be able to restrict a company’s access to concessional deductions for the overseas expenditures if that undertaking is not fully met.

 

If the Board decides to amend or revoke a provisional certificate, the Board must give written notice to the company of the decision with reasons.  The company may apply for reconsideration of the decision by the Board under section 39S of the IR&D Act.

 

Items 10 and 11 - Cancellation of registration of an Australian research agency

 

Item 10 will allow the Board to give a registered Australian research agency an annual notice requesting advice as to whether it wishes to remain registered.  If the Australian research agency wishes to remain registered it must send the Board the appropriate completed form.  If the Australian research agency does not do so within 30 days, or a longer period allowed by the Board, its registration is cancelled.

 

Currently, Australian research agencies are registered indefinitely.  The proposed changes are aimed at ensuring that the Board has up to date information about registered Australian research agencies.  This will allow the Board to provide relevant and current information to companies seeking to use the expertise of registered Australian research agencies.

 

A company may apply for reconsideration by the Board of a decision to give or not to give such notices, or for reconsideration of any decision not to allow a longer time period for response.

 

Item 12

 

See Item 21.

 

Items 13 and 14 - Period for making an application for registration

 

These Items will increase the current period for making a registration application from six months after the end of the company’s year of income to ten months.  This will make it easier for companies to meet the deadline for making an application by both increasing the period allowed and moving, for most companies, the deadline away from busy periods on the calendar.

 

For companies seeking registration for a year of income ending before the new provision commences, the current time limit will continue to apply.

 

Item 15 - Alteration of registration       

 

The proposed changes will allow the Board a limited discretion to alter the registration of a company to correct a mistake in the registration.  The Board will be able to exercise this discretion in appropriate cases where the mistake was caused by an error in the application in relation to:

 

·          the name of the company;



·          the specification of activities which have been the subject of advance registration; or

 

·          the information specified in the regulations to be included in an application.

 

The Board would be able to alter the registration in cases such as those in the following example:

 

The Board has registered Company A (for Activity 1) and Company B (for Activity 2).  After registration, the companies inform the Board that their applications contained an error and that Company A undertook Activity 2, and Company B undertook Activity 1.  Without such alteration to the registration, neither company would be eligible to claim tax deductions for their expenditures under the Research and Development Tax Concession scheme.

 

Items 16, 17 and 18 - Content of application for registration and declaration as to records

 

These Items contain further streamlining provisions designed to allow the Board the flexibility to alter the information requirements imposed on companies in the registration process.  Currently, the level of information required of applicants in terms of the specification and description of the research and development activities for which they seek registration is the same regardless of the expenditure levels associated with those activities.

 

These Items will allow the Board to require different information for different classes of applicant. This provision will, for example, enable the Board to reduce the information requirements for companies making smaller claims.

 

Paragraph 39JD(1)(b) of the IR&D Act, which requires an applicant to specify the research and development activities for which it seeks registration, will be repealed.  Instead, eligible companies will have to make an application containing the information about their research and development activities required by application forms approved by the Board.

 

The use by the Board of an approved form to alter the information required of applicants is favoured over specifying requirements in the IR&D Act or regulations because:

 

·          the Board is the body responsible for making determinations regarding individual cases under various provisions of the IR&D Act.  It is therefore appropriate for it to have the power directly to specify the information it requires to assist that decision-making process; and



·          it enables the Board to act more quickly and flexibly to change information requirements than does legislative or regulatory change.



Declaration by authorised person as to the keeping of contemporaneous records

 

This change to section 39JD will require each registration application to be accompanied by a declaration, by an officer of the company who is authorised by the company, that the company has maintained records which substantiate the carrying on of its activities.  This will reduce the risk of possible abuse of the tax concession scheme by companies constructing research records after the event in order to justify an expenditure claim. 

 

Items 19 and 20 - Removal of power to grant an extension of time for making an application

 

The increased period for making an application for registration (see Items 13 and 14 above) removes the need for a provision allowing for a three month extension of time.  Accordingly, the proposed change removes the power of the Board to extend the deadline by three months.  

 

However, companies seeking registration for a year of income ending before the new provision commences may apply to the Board for a three month extension of the time limit under section 39JE of the IR&D Act.

 

Item 21 - Late applications

 

New subsection 39JF will allow the Board to consider a company for registration which fails to meet the deadline for making an application because of exceptional circumstances.  Examples of exceptional circumstances might include:

 

·          postal delays, where an eligible company was able to produce evidence to the satisfaction of the Board that the application was posted at least four working days prior to the relevant deadline; and



·          the untimely death or severe illness of the consultant or company accountant responsible for preparing the application on behalf of the company.

 

If the Board proposes to refuse to register a company due to the lateness of an application for registration, the company will be notified and will have 30 days to make a case that the lateness of the application was due to exceptional circumstances.

 

The limited discretion extended to the Board to consider late applications does not allow retrospective access to the Research and Development Tax Concession scheme, which the current deadlines in the IR&D Act are designed to prevent.

 

Item 22 - Failure to exploit results of successful research and development activities

This Item clarifies the powers of the Board in relation to companies which fail to exploit the results of successful research and development activities.  If it would have been reasonable to expect that the results would be exploited, but the company has failed to do so, the Board may issue a certificate to the Commissioner of Taxation.  The certificate will cause the company to be ineligible for the research and development deduction for those activities.

The new provision will only apply to a failure to exploit results that occurs after commencement.

 

Items 23, 24 and 25 - Internal review of decisions

 

These Items provide that the following decisions will be subject to internal review:

 

·          a decision to amend a provisional certificate under subsection 39EF(2)

 

·          a decision to revoke a provisional certificate under subsection 39EF(4)

 

·          a decision to give or not to give a registered Australian research agency a notice under subsection 39FA(1)

 

·          a decision under subsection 39FA(3) not to allow a longer period for registered Australian research agencies to respond to a notice.

 

Item 25 notes that a decision whether to register a company referred to in subsection 39JF(1) - the proposed new discretion with respect to late applications - is a decision under section 39J and is therefore reviewable.

 

Items 26, 27 and 28 - Supply of confidential information

 

This Item provides that the confidentiality provisions in section 47 do not apply to the supply of information to:



·          staff of the Minister appointed under sections 13 or 20 of the Members of Parliament (Staff) Act 1984 , or



·          consultants and other persons providing services to the Department who are designated in writing by the Secretary.