I went along from a position of relative naivety, expecting to hear a rather prosaic description of mundane changes to some legislation regarding accounting changes for the scheme.  NICTA is a registered research authority and therefore R&D services work contracted by our customers could have the potential to qualify for the concessions or credits in the future. To my knowledge, no NICTA client has yet had a contract in which the scheme could apply. However, a growing interest in providing R&D services, from both within NICTA and from its industry friends, could see this change quickly.  Hence it is very much in our interest to understand the scheme and how to satisfy the eligibility criteria.

But Monday’s meeting was certainly not mundane and some of the language used was anything but prosaic.

Ian Birks, CEO of the AIIA, gave an overview of the proposed changes and their implications for the ICT industry.  Previously, IT R&D had to satisfy one of two typical criteria: For an activity to qualify it required demonstrable innovation, or significant technical risk. Furthermore, an intention had to be shown that the activity will be made available for multiple sale or license, to rule out large internal infrastructure upgrades, for example.

Under the new law, claimants must demonstrate both innovation and significant technical risk for the project that must support core functions of the business. And the proposed rules related to ‘multiple sale’ have been hardened.

According to Peter Roberts of the Financial Review, Business Expenditure R&D (BERD) in Australia makes up about 1.2% of our GDP, below the OECD average of about 1.6%.  For the leading countries BERD is 2.5% or higher and in these cases their R&D tax benefits are already less constraining than ours – certainly the dual test has been rejected by most.

On the ‘prosaic language’ point, Roberts went further and said that the changes basically “emasculate” the intention and vision of the original R&D tax concession scheme introduced in 1985, which was about encouraging innovation and risk-taking in Australian business.

Suffice to say there was a lot of negative, but directed, energy in the room. On the positive side, most, if not all of the participants seem to believe that the changes have been drafted from a position of ignorance rather than malice or destructiveness, and this seems to be confirmed by reports on Tuesday. There was the suggestion that the ICT industry has been caught in an ‘unintended consequences trap’ as Treasury tries to cut out those from other industries who have rorted the scheme or distorted the application of its intended benefits. But there is also the belief that they’ve failed to seek thorough formal consultation on the new rules and the impact they will have. According to panellists and participants from large businesses and SMEs alike, that impact will be profound. For those that continue to do leading edge and/or risky stuff in IT, those risks will be pared back and costs will be cut, driving some further into the off-shoring camp. But for many others, it will basically mean that they cease their risky or innovative ventures.

As I mentioned above, the R&D tax concession (or credit) scheme is not something that has directly impacted our team’s research and external engagements, because we are not profit making nor have any of our contracts to date been structured with the scheme in mind.  But if the amendments are implemented as drafted and do indeed have the effect of driving ICT R&D away, or into mediocrity, then we’ll all be the poorer for it.

Let’s hope the authors of the changes can avoid a policy disaster on this one.