Labor's tax changes spark fresh concerns for Australian medical tech startups

Cutting-edge medical technology companies in Australia are sounding the alarm over new restrictions on tax refunds for research and development, warning that these changes, coupled with capital gains tax adjustments, create a "triple threat" to health startups.

Nine peak industry bodies, including Bio NSW and AusBiotech, have sent a joint letter to Treasurer Jim Chalmers. They are requesting "urgent action" to recalibrate the R&D tax incentive and capital gains tax (CGT) to support the sector's continued success. The companies argue that the typical longer timelines for bringing medical products to market make them particularly vulnerable to the new ten-year limit on a component of the R&D tax incentive that allows for refunds of losses.

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The groups, including Bio NSW, Life Sciences Queensland, BioMelbourne Network, Life Sciences WA and AusBiotech, are seeking "urgent action" from Mr Chalmers to ensure the R&D tax incentive and CGT are "appropriately calibrated" to support the "continued success" of Australian companies in the sector.

The government's budget introduced changes to the R&D incentive, increasing the turnover threshold to $50 million but limiting refundability to companies under 10 years old. Previously, companies with turnover under $20 million could receive a refundable offset, providing crucial cash refunds for early-stage, loss-making firms. The industry groups are concerned that these changes may disincentivize companies from remaining in Australia.

The relevant bill passed the House of Representatives and is set for a short inquiry before potentially moving to the Senate. However, the Greens and Coalition have indicated they might push for a longer inquiry into these tax changes, potentially linking it to scrutiny of the National Disability Insurance Scheme reforms. Despite this, the government remains confident the tax changes will pass in July.

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The letter, seen by the ABC, said the ten-year limit and changes to eligibility elements of the refundable R&D tax incentive as well as the switch from a flat 50 per cent CGT discount to a model tied to inflation collectively posed a "significant triple threat" to domestic medical technology companies.