R&D Tax Incentive exclusions: Gambling and tobacco
R&D Tax Incentive exclusions: Gambling and tobacco
No changes to the R&D Tax Incentive were announced in Federal Budget 2025. However, in the 2024-25 MYEFO, the Government announced that it intends to exclude activities related to gambling and tobacco from the Research and Development Tax Incentive (RDTI) for income years starting on or after 1 July 2025.
Eligible R&D entities in these sectors will still be able to claim activities conducted solely for the purposes of harm minimisation, for example reducing addiction.
No further announcements regarding these measures have been made and the status of these measures is unclear.
Forecast
The budget papers note payments related to the Research and Development Tax Incentive program are expected to increase by $55.8 million in 2025–26 and decrease by $640.6 million over five years to 2028–29, largely reflecting lower-than-expected claims.
Contrasting this, the papers also note that expenses for the R&D tax incentive administered by the ATO are expected to increase during the period 2025–26 to 2028–29 because of increases in the number and value of anticipated claims from eligible companies in the mining, manufacturing and construction sectors.
BDO comment
The proposition to exclude activities related to gaming and tobacco was announced in response to the negative press the program received following the first R&D Transparency Report released in October 2024. This sets a concerning precedent for what has always been an industry-agnostic program.
If R&D tax policy is subject to the prevailing political atmosphere, taxpayers will question the reliability of the RDTI for long-term planning.
The RDTI should remain industry-agnostic, as it is the consistent and uniform nature of the program that provides taxpayers with the comfort to conduct R&D activities that might otherwise be deemed too risky due to uncertain returns.
We also have some concerns about the proposed language for the law changes. In particular:
- The definition "related to gaming and tobacco" is broad and may affect taxpayers developing technologies used across various industries, simply because the technology could also be applicable to the gaming or tobacco sectors
- The proposed safe harbour for R&D activities involving “harm minimisation” is vague. It is unclear what constitutes harm minimisation, who decides it, and where the burden of proof lies for the taxpayer.
The conflicting commentary on the increase or decrease in the expected number of claims could reflect a budget written in a hurry by different departments or a proposed ATO crackdown in certain sectors.
We recommend that the Government refrain from making impulsive changes to the RDTI without engaging stakeholders. Such action is essential to maintain confidence in the program. Failure to engage stakeholders may undermine the Government’s efforts to increase R&D spending as a proportion of GDP through the ongoing strategic review of Australia’s R&D ecosystem.