R&D Tax incentive changes

Question

1. The 2026-27 Budget announced changes to the capital gains tax discount from 1 July 2027 and reforms to the R&D Tax Incentive from 1 July 2028, including limiting the refundable offset to companies less than 10 years old. a. Was the Department consulted by Treasury on the design of the capital gains tax changes before they were announced on 12 May 2026? If so, when, and what advice did the Department provide? Can that advice be made available to the committee? b. Was the Department consulted on the design of the R&D Tax Incentive reforms, specifically the 10-year refundability limit? Did the Department raise any concerns about the impact on biotech, given development timelines routinely exceed a decade? c. Has the Department been tasked with leading or participating in the post-Budget consultation? Who is leading it, what is the timeline, and when will the Department report back to Government? d. Has the Department received submissions or representations from AusBiotech or other life sciences participants since the Budget? How many, and can they be tabled? 2. Dr Andrew Wilks, joint recipient of the 2024 Prime Minister's Prize for Innovation, has publicly stated that 10 to 20 per cent of Australian biotech founders are likely to relocate offshore because of the Budget tax changes. a. Has the Department modelled or assessed that scenario? If not, why not? b. AusBiotech has stated the changes will reduce early-stage investment and erode the value of employee share schemes, weakening Australia's ability to attract and retain talent. Does the Department accept that assessment from the peak industry body? c. Has the Department assessed the combined impact of the capital gains tax changes, the R&D Tax Incentive 10-year cap, and the changes to discretionary trust taxation on the biotech sector specifically? d. If 10 to 20 per cent of biotech founders relocate offshore, what is the Department's assessment of the sovereign capability implication, and is that consistent with the Future Made in Australia objectives? e. For biotech founders the cost base is typically zero, so inflation indexation provides no relief. Has the Department analysed whether founder equity will effectively be taxed at the headline marginal rate, with no offset for years of below-market salaries taken in lieu? 3. The Budget limits R&D Tax Incentive refundability to companies less than 10 years old from 1 July 2028. Biotech development from discovery to commercialisation routinely takes 10 to 15 years or longer. a. What was the basis for selecting 10 years as the cut-off? b. Did the Department raise the timeline mismatch with Treasury before the cap was finalised? c. Will the post-Budget consultation include reconsideration of the 10-year R&D cap, or is it limited to the capital gains tax changes? If limited, why is the R&D cap out of scope, given biotech is affected by both measures? 4. The Future Made in Australia framework commits to five priority sectors: renewable hydrogen, critical minerals processing, green metals, low carbon liquid fuels, and clean energy manufacturing. Biotech is not among them. a. Why was biotech excluded from the Future Made in Australia framework? Did the Department provide advice on whether biotech should be designated a priority sector? b. Does the Department accept that, for biotech, the combined effect of exclusion from Future Made in Australia support together with the capital gains tax and R&D changes disadvantages the sector? 5. Comparable jurisdictions, including Singapore, Hong Kong, New Zealand and the United States, have been identified as more attractive destinations for Australian biotech founders under the new settings. a. Has the Department compared the post-Budget Australian capital gains tax and R&D treatment of biotech founders and investors against the equivalent regimes in those jurisdictions? If so, what does it show? If not, why not? b. Is the Department aware of any biotech founder currently relocating their company offshore citing the Budget changes, and is the Department tracking this?

Answer

See attached response.

Documents

• Question with answer (PDF) (opens in a new tab)
• BI-036_Liddle_R&D Tax incentive changes_DISR.pdf (opens in a new tab)