Fresh concerns emerge over impact of Labor's tax changes on medical tech

Cutting-edge medical technology companies say new restrictions on tax refunds for research and development will hurt health startups in Australia, which are facing a "triple threat" under Labor's budget changes.

A ten-year limit on a component of the research and development (R&D) tax incentive that allows companies to get a refund from the Australian Tax Office for losses has raised alarm among health startups, which typically take longer than other companies to get their products to market.

Nine peak health and medical technology industry bodies have signed a joint letter sent to Treasurer Jim Chalmers this week asking the federal government to adjust some of the changes in last month's budget, including the overhaul of the capital gains tax discount.

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 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.

Labor changes to the CGT and negative gearing, along with a $250 annual tax offset for workers and an optional $1,000 automatic tax deduction for income earners passed the House of Representatives on Thursday.

The omnibus bill will now be the subject of a short two-day inquiry, which is due to report back on June 19, with Labor hopeful of passing the changes through the Senate in the next parliamentary sitting fortnight later this month.

The Greens and Coalition have not ruled out teaming up to have a longer inquiry into the tax changes, which would possibly be negotiated alongside a similarly extended examination of Labor's sweeping changes to the National Disability Insurance Scheme (NDIS).

Despite this potential deal, senior Labor figures were confident late this week that the short tax inquiry would remain and the CGT bill would pass in July.

R&D incentives 'critical' to health tech sector

Labor's federal budget made several changes to the R&D incentive, making it more generous for some companies, but much less refundable for others.

Previously eligible companies with a turnover under $20 million were able to receive a refundable R&D tax offset.

This meant if a firm was loss making — as many startups are in early years — it could receive a cash refund from the ATO rather than waiting until it made a profit.

The 2026-27 budget increased the turnover threshold to $50 million, but limited refundability to companies that are less than 10 years old.

Businesses that have existed for longer than that can still access the R&D incentive, but it becomes non-refundable, meaning it could only offset tax owed now or in future years.

The letter to Mr Chalmers warned bringing health and medical technologies, products or services to market "routinely takes well beyond ten years".

"Companies spend years progressing through the phases of discovery, pre-clinical development, evidence generation and clinical trials, regulatory approval and manufacturing scale-up before revenue generation is even possible," the letter said.

"R&D is critical to each of these phases."

The government has previously acknowledged the time it takes to get a medical product to market, for example last year's National Health and Medical Research Strategy Issues Paper averaged the timeframe at 17 years.

A spokesman for Mr Chalmers said Labor was "significantly boosting" funding for research and development tax incentives in the budget.

"We know how important it is to productivity, jobs and economic growth," he said.

"We're establishing a new National Resilience and Science Council to provide strategic oversight of the government's innovation investment to better align it with Australia's economic objectives, and this will help to guide the Commonwealth's more than $39.1 billion investment in R&D over the forward estimates."

The changes to the R&D tax settings were designed to increase incentives by 25 to 50 per cent and drive more investment from young and growing firms.

Biotech developers 'blindsided' by Labor's changes

Medical tech bodies also warned the removal of R&D "supporting activities" was also a problem as generally clinical, regulatory and quality services sat "outsides of startups" as most could not afford to bring in the necessary resources and expertise in-house during their first ten years.

"Australia's many world-class health and medical research support organisations would be put at risk by this limitation on eligibility,"

the letter said.

On the CGT changes, the groups advised Mr Chalmers it would make many medical technology businesses ponder whether the "high risk" research and development was worth it or whether "staying in Australia to realise their ambitions is the right choice".

Over the past ten years biotechnology has become a significant export industry for Australia, with the sector supporting more than 350,000 jobs across almost 3,000 organisations.

AusBiotech chief executive Rebekah Cassidy said the proposed changes had already created uncertainty for Australian companies that were making "long range" decisions about where they should undertake clinical developments.

"The long timeframes required to translate and develop medical research into health products for patients are not new news," she said.

"It is well understood by industry and government."

Ms Cassidy said the sector was "blindsided" by the CGT overhaul, which combined with the limitation on the R&D incentive would hamper the development of Australian-made medical products and drugs.

"We want to work with the government to get these policy settings right and at speed so we can give Australia's biotech, medtech and health tech companies the policy certainty they need to continue to thrive," she said.

"We just need government to meet us at the table."

Shadow Treasurer Tim Wilson accused Labor of failing to understand how the budget was a "wrecking ball" for building Australia's future economy, including medical technology.

Shadow Health Minister Anne Ruston said the Coalition shared concerns of the medical research sector that the tax changes negatively impact innovation and investment.

"Combined with the government's glacial pace in responding to the Health Technology Assessment Review, Australia risks falling to the back of the pack in access to new life changing and live saving medicines and medical technologies," she said.

Labor tax consultation won't be a 'drawn-out' process

Mr Chalmers is currently consulting with the tech sector and startups about carve-outs for Labor's CGT changes, having acknowledged the application of the new discount disproportionately impacts companies that start from a low-cost base.

Treasury is also conducting consultations that will inform a position paper the government would then use to develop a second tranche of legislation on the implementation of the CGT changes.

The new tax regime is not due to begin until July 1 next year, which has fuelled criticism of Labor about the rapid pace of the legislation.

Business groups have demanded significant changes to the CGT overhaul, but Prime Minister Anthony Albanese has continued to hose down this possibility.

Speaking about the consultations at the Australia's Economic Outlook 2006 summit hosted by Sky News and The Australian on Friday, Mr Albanese ruled out a "long, drawn-out process that ends with fiddling around the edges of the status quo".

"We have said all along, we will engage in good faith on the detailed design of the legislation that will follow," he said.

"Over the last four years, my door has always been open to discussions with business."