Research & Development (R&D) Incentives

The Directors of GRS attended a One Nucleus Network meeting at the Babraham Research Campus on 22 February 2012. This event focused on the R&D incentives being offered by the Australian and UK governments so it was interesting to make a comparison.

Kathleen Devereaux, Senior Investment Manager, Australian Trade Commission (Austrade) provided some background information on the Australian Biotech industry which included the following facts:

Australia has the 6^th largest biotech market in the world
Estimated growth rate by 2016 is 4.5%
Human therapeutics makes up 49% of biotech business
Examples of ‘firsts’ include the development of the first cervical cancer vaccine, helicobacter treatment and the cochlear bionic ear
There are 39 universities (so plenty of opportunity for spin-outs)
Global Pharma are based in Australia for example, GSK, AstraZeneca, Shire Pharmaceuticals and the Wellcome Trust
There is now significant Government support and incentives for science and innovation
Australia is the 2^nd best country in the world to set up a business (so which country is the first?!)

David Gelb, Partner, R&D Incentives at KPMG then went into the R&D tax credits in more detail. Before doing so, however, he emphasised how innovative Australia has been in the past – they invented mechanical sheep shears and, of course, the boomerang!

The new R&D Tax Incentive commenced 1^st July 2011 and replaces the R&D Tax Concession. It provides new grants and incentives for eligible R&D activities. Two key components are:

A 45% refundable tax offset for eligible companies with an aggregated turnover of less than $20 million per annum; or
A non-refundable 40% tax offset for other eligible companies (if an SME you can receive a cash refund).

So how does this compare with the UK? Dr Kristin Kornerup, R&D Consultant at Leyton explained:

A loss-making SME can claim a tax credit of up to 24.5% of qualifying R&D expenditure incurred by them during an accounting period
A profit-making SME can claim a tax relief enhancement of up to 175% of qualifying R&D expenditure and a Large Company can claim an enhancement of up to 130%
The scheme is initially available to offset corporation tax payable by a company in the year that expenditure was incurred. Relief can also be applied on a group basis
Qualifying relief can be carried forward indefinitely. It may also be carried back and offset against corporation tax paid by the company in the previous year.

It was pointed out, however, that the scheme is changing to reduce its current complexity. It is anticipated that these changes will be implemented in 2013.

One interesting anomaly is that currently the EU’s definition of an SME is companies with a headcount of less than 250 whereas the R&D tax credit definition is 500!

Chris Holloway, one of the founder’s of ERA Consulting, provided an entertaining overview of how his company entered the Australian market. This balanced out the evening well.

Comment by Greer Deal, Director of Global Regulatory Services (GRS)