• The Morrison government has abandoned plans to reduce a R&D tax refund by $1.8bn, and will instead add $200m in value to the incentive
  • The federal government is also investing $1.5bn in manufacturing over four years
  • Early-stage tech, biotech and resource companies back the decision that they say will keep jobs in Australia

The Australian resources, biotech and tech sectors are breathing a sigh of relief after the federal government revealed plans to scrap its contentious R&D reforms.

A $4m cap on cash tax refunds for companies under the Research and Development Tax Incentive won’t proceed, nor will potential for 2020 clawbacks of tax credits already paid. Other changes wll make the credit easier to claim.

All told, changes to the tax credit scheme that would have resulted in $1.8bn in savings for the government have been abandoned and instead another $200m in value has been added to the tax credit, Treasurer Josh Frydenberg announced on Tuesday night in his budget address.

AusBiotech chief executive Lorraine Chiroiu called it “excellent news for our industry, and will preserve the highly-skilled STEM-based jobs in Australia”.

While the $4m cap specifically excluded clinical trials, it could have hit healthcare companies like Cochlear (ASX:COH) and Starpharma (ASX:SPL) as well as resources and tech companies.

Starpharma received a $4.9m tax refund in December for R&D associated with the development of its DEP drug delivery system and VivaGel women’s health products.

Chief executive Dr Jackie Fairley called the tax incentives “an important initiative to support the development of Australian innovations”.

Sustainable technology company Calix (ASX:CXL) announced on Wednesday that it had just received a $5.3m R&D rebate from the Australian government, adding it was “pleasing” to see the proposed $4m cap being lifted.

Calix is developing carbon capture technology for application in emissions intensive industries such as cement and lime. The company says it has 27 patent families covering the manufacture of sustainable materials.

Northern Minerals (ASX:NTU) welcomed the government’s decision to back down on the plans, noting the move will enable the rare earth miner to potentially access the R&D rebate for more than $4m in future financial years.

The company this week lodged a tax return claiming $8.7m in eligible R&D work associated with processing heavy rare earth elements from hardrock xenotime ore at its Browns Range mine in WA’s Kimberley region.

The R&D debate has been a sore point for Northern Minerals, which had to fight R&D overseer AusIndustry last year to get the regulator to reverse its rejection of its FY17 and FY18 claims.

Browns Range is the only rare earths project in Australia that contains xenotime ore – the host ore for the various rare earth elements. This means the company has to prove up the process for  producing rare earths from xenotime ore.


Manufacturing investment

Northern Minerals was also pleased the Morrison government would invest another $1.5bn over four years in the Modern Manufacturing Strategy, including another $1.3bn in co-funding projects across six national priorities.

Those priorities are resource development and critical minerals processing; food and beverage; medical products; recyling and clean energy; defence; and space.

Dr Mohammad Chouca, chief executive of advanced materials business Archer Minerals (ASX:AXE), said the policies supported early-stage tech companies such as itself.

“The announcements made by the government [Tuesday] night provide Archer and its shareholders with certainty and confidence to continue moving forward with our strategy to develop and commercialise innovative deep tech,” he said.

Sally-Ann Williams, CEO of “deep tech” incubator Cicada Innovations, said the investment was “great news for every one of our deep technology companies, who all employ advanced manufacturing in some capacity in building their world-changing innovations”.

“Leveraging science-based engineering and advanced manufacturing in areas that Australia has a competitive advantage is the best chance we have of turning Australia into a global economic powerhouse,” she said.

While many past recipients of manufacturing grants have been private companies, Droneshield (ASX:DRO) received $120,486 in funding for a $481,944 project to build a manuacturing test chamber and new cloud-based testing process, records show.