Australia’s medical technology sector has sounded a formal alarm over the federal government’s latest budget, warning that proposed tax changes could undermine the viability of health startups. Nine peak industry bodies, including AusBiotech, Bio NSW, Life Sciences Queensland, BioMelbourne Network, and Life Sciences WA, have united to send a joint letter to Treasurer Jim Chalmers, characterizing the government’s fiscal plan as a “significant triple threat.”
At the center of the dispute is a newly introduced ten-year limit on the refundable component of the Research and Development (R&D) tax incentive. While the government has increased the turnover threshold for eligibility to $50 million, the restriction on refundability for companies older than a decade poses a unique challenge for the health sector. Industry leaders argue that bringing medical products to market is a marathon, not a sprint, often requiring well over a decade to progress through discovery, clinical trials, and regulatory approval before any revenue is generated.
Did You Know? The Australian government has previously acknowledged that the timeline for bringing a new medical product to market can be lengthy; a report from last year’s National Health and Medical Research Strategy noted that the process averages 17 years.
The industry coalition is also concerned about the overhaul of the capital gains tax (CGT) discount, which moves from a flat 50 per cent model to one tied to inflation. Combined with the R&D changes and the removal of certain “supporting activities” from tax eligibility, the sector warns these policies may cause startups to question whether remaining in Australia to pursue their long-term ambitions is sustainable. AusBiotech chief executive Rebekah Cassidy noted that the industry feels “blindsided” by these changes, which come at a time when biotechnology has emerged as a significant export industry supporting more than 350,000 jobs.
Expert Insight: The tension here highlights a fundamental friction between broad fiscal policy and specialized innovation. While the government seeks to streamline tax settings to drive investment in younger, high-growth firms, the medical sector’s reliance on long-range development cycles suggests that a “one-size-fits-all” approach may inadvertently penalize the extremely research-heavy startups that require the most stability to reach commercialization.
The government’s omnibus bill, which includes the tax changes, passed the lower house this week. A two-day inquiry is currently scheduled to report back on June 19, though opposition parties have not ruled out pushing for a more extensive investigation. While Labor remains hopeful that the legislation will pass the Senate later this month, the government is currently engaged in consultations regarding potential carve-outs for the CGT changes. Prime Minister Anthony Albanese has maintained that while the government will engage in good faith on the design of the legislation, he does not intend for the process to be a “long, drawn-out” affair.
Frequently Asked Questions
Why are health startups concerned about the ten-year limit on R&D tax refunds?
Startups in the medical sector often require more than ten years to move from initial discovery through clinical trials and regulatory approval, meaning they remain pre-revenue for longer than firms in other industries. The change makes the R&D incentive non-refundable for companies older than ten years, limiting their ability to receive cash to offset losses during these critical phases.
What is the “triple threat” mentioned by industry bodies?
The term refers to the collective impact of the ten-year limit on R&D tax refunds, the switch from a flat 50 per cent CGT discount to a model tied to inflation, and the removal of eligibility for R&D “supporting activities” such as clinical and regulatory services.
What is the next step for the proposed tax legislation?
The bill is currently subject to a two-day inquiry, which is due to report back on June 19. The government hopes to pass the changes through the Senate in the following parliamentary sitting fortnight, with the new tax regime intended to begin on July 1 of next year.
Will the government’s upcoming consultations result in meaningful adjustments for the medical technology sector?