Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF REPRESENTATIVES
EXPLANATORY
MEMORANDUM
(Circulated by the authority of Senator the Honourable
Nick Minchin, Minister for Industry, Science and Resources).
ISBN: 0642 379335
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.
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).
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.
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.
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.
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.
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.
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.