RSM Australia

RSM’s response to Vision for a Science Nation: Australia's future

Tax Insights

While the R&D Tax Incentive is one of the effective mechanisms for stimulating innovation in Australia, Science Technology, Engineering and Mathematics (STEM) competitiveness can be improved by enhancing and developing new incentives to increase Australia’s investment in innovation, according to RSM.

In September 2014, Australia’s Chief Scientist, Professor Ian Chubb, laid out the need for change in his paper Science, Technology, Engineering and Mathematics : Australia’s future. The paper identified critical vulnerabilities in Australia’s STEM efforts, which need to be addressed if domestic economic productivity and international competitiveness are to be maintained.

The Federal Government recently responded to 24 recommendations by Professor Chubb with a paper titled Vision for a Science Nation.

Stephen Carroll, R&D tax services director, RSM, said, “The Federal Government needs to adopt a better approach to improve the economy’s competitiveness, to help encourage and incentivise  corporate Australia to engage in research through the life cycle of innovation”.

In his team’s submission, Stephen says that while Australia rates mid-table in global rankings of innovation we do poorly in the commercialisation of innovation. Increased STEM focus should be towards best practice commercial programs, but not to the detriment of research support.

Australia is currently being out-competed in commercialising STEM by countries with more comprehensive strategies and an integrated approach to creating a business-friendly tax system, including both generous tax incentives and grants, such as Singapore.

Stephen said, “Australia’s market-based R&D Tax Incentive works as intended, as the primary mechanism for incentivising industry R&D, especially for SMEs, encouraging innovation and addressing market failures such as the lack of investment capital. And, the effectiveness of Australia’s R&D Tax Incentive in preventing the overseas exodus of the existing STEM industry and jobs, given higher costs and corporate tax rates, should not be underestimated.”

Although effective for stimulating R&D in Australia, the support provided through the R&D Tax Incentive is limited and does not support critical commercialisation and scale up phases. 

Enhancements to existing and developing new tax incentives should include:

  • increasing and targeting the R&D Tax Incentive to support start-up business and encourage collaboration with research institutions
  • implementing an R&D-linked Patent Box to encourage Australian commercialisation to keep the great ideas and people in Australia
  • implementing a tax incentive for individual investors that provide seed capital to early-stage innovation companies to provide the financial incentive to divert funds into market-driven investment decisions for innovation

Stephen said, “The Federal Government’s best and most efficient means to ensure STEM is encouraged in Australian businesses is to logically extend the R&D Tax Incentive. This should be both in terms of the support offered and in extending it to supporting the commercialisation of Australian STEM research in Australia through schemes comparable to the UK’s ‘Patent Box’ and Enterprise Investment Scheme. Such a move could underpin the economic transformation needed to ensure our continuing prosperity and international competitiveness".

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