Although biotechnology will receive favourable treatment in the overhaul of Australia’s Research and Develop Tax Incentive (RDTI), representative groups say the changes will leave research institutions worse off than before.

Canberra the reforms to the tax break scheme as the “first stage” of its response to the Strategic Examination of Research and Development (Serd). The changes, foreshadowed in the May budget, include a 4.5 percentage point increase to the RDTI offset rates, bringing the rebate for the programme’s most beneficial component – the premium “refundable” stream, targeted at smaller enterprises – to 48 per cent.

Access will also be extended to companies with turnover of up to A$50 million (£26 million) a year – up from A$20 million now – while eligibility criteria will be loosened for the non-refundable component of the scheme, which is designed for larger companies.

However, the government plans to tighten some aspects of the scheme to bankroll these changes. Most significantly, “supporting” R&D activities such as pilot studies, literature reviews and preliminary infrastructure checks will lose eligibility, while refundable offsets will only be available to companies established within the previous 10 years.

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That time frame has now been extended to 15 years for research into therapeutic goods or their use, according to draft legislation released by the federal government. The extra five-year eligibility window recognises the “unique circumstances of biotechnology and medical technology firms”, which face “longer regulatory approval processes and product development time frames” than their counterparts in other fields, treasurer Jim Chalmers explained.

Treasury is also seeking views on whether research activities related to clinical manufacturing should be eligible for the RDTI, he said.

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The Association of Australian Medical Research Institutes said the five-year extension was “positive” but not enough. CEO Saraid Billiards said biomedical research usually required 15 to 25 years to produce “something tangible” like a drug, device or intervention. Companies typically did not earn revenue for “15 years or more”, she said.

The RDTI offered direct benefits for companies spun out from medical research institutes, as well as supporting firms that collaborated with institutes, Billiards said. But the removal of eligibility for supporting activities had also alarmed her sector, she added. She said background work for clinical trials, such as preliminary data analysis and preparation for regulatory assessment, were often essential.

“What seem like inconsequential changes actually can have quite severe ramifications,” she said. “Hopefully with time and...greater understanding, there can be a pullback on some of those decisions.”

Australian business spending on R&D languishes at about 0.9 per cent of gross domestic product, well below the Organisation for Economic Co-operation and Development average of about 1.9 per cent, while collaboration between industry and research institutions is also low by international standards.

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Lobbyists have long sought reforms to the RDTI to boost collaboration rates. The scheme garners roughly A$4.6 billion a year in taxpayer support – more than the allocations from the Australian Research Council, National Health and Medical Research Council and Medical Research Future Fund combined.

Science and Technology Australia (STA) said the overhaul outlined in the draft legislation would leave the RDTI less effective than previously. “The small benefits we’re gaining…don’t make up for the negatives,” said CEO Ryan Winn.

He also said it was “a stretch” for the government to characterise the RDTI overhaul as the first stage of its Serd response. The proposed changes to the scheme only have a “glimmer of relevance” to the Serd recommendations, he said. A budget document estimates that the changes will reduce government spending by a net A$690 million over five years.

Just one of Serd’s 35 recommendations has been realised so far while another five have been “partially” implemented, according to a “progress scorecard” maintained by STA.

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The Council of Australian Postgraduate Associations (Capa) said the increase to the RDTI offset rates was a “genuine improvement” but the removal of eligibility for supporting activities undermined the work that “makes discovery possible”.

“In real research, the supporting work – the data, the groundwork, the infrastructure around the core experiment – is where many of the vital costs sit,” said Capa president Jesse Gardner-Russell.

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john.ross@timeshighereducation.com