Companies will look outside Australia to invest in innovation and research if the government's new restrictions on tax rebates are legislated, accounting firm KPMG says.
The government has capped the amount companies can be refunded under its Research and Development Tax Incentive (R&DTI) scheme in a measure that will save an estimated $2.4 billion over the next four years.
There will be a $4 million cap on cash refunds, and a sliding scale introduced under which increases in rebates are linked to how much a company spends on R&D as a proportion of its total expenditure.
KMPG said the measures will deny thousands of companies R&D claims and force companies to consider relocating their research to countries with more attractive incentives, such as Singapore and New Zealand.
"Australia's destination as a desirable location to invest in R&D will be extinguished if these austerity measures are legislated," the accounting firm.
While hurdles have been raised, the government has also increased the maximum amount of expenditure eligible for tax offsets from $100 million to $150 million.
The $4 million cap, due to start from July 1 this year, does not apply to spending on clinical trials - a measure likely to allay industry fears that trials may have been forced offshore.
Biotechnology industry body AusBiotech welcomed the exclusion of clinical trials and said the move will keep momentum in trials and continue growth in commercialising medical research.
The government on Tuesday said a $4 million cap on cash refunds will continue to provide "generous support" for small, innovative Australian companies and will contribute $2.4 billion to the budget over the next four years.
Under the current incentive introduced in 2009, a company can claim back 43.5 cents of every dollar spent on medical research.
According to AusBiotech, 17 per cent of ASX-listed medical technology and pharmaceutical companies that claim refunds have already reached the $4 million cap, while another nine per cent are in the "danger zone".
The overhaul comes following a 2016 review of the R&DTI which found the program was "failing to meet its objectives" of encouraging research and development and generating the flow-on benefits for the Australian economy.
The cost of the rebate scheme was expected to be $1.8 billion per year when it was introduced in 2011/12 but in 2016/17 it cost around $3 billion.
