The Federal Government has introduced a new research and development tax credit system which will aim to assist small businesses offset the cost of conducting research in their respective fields.


The Credit, which passed Federal Parliament last week, forms a central part of the government's Powering Ideas innovation agenda.


Innovation Minister Senator Kim Carr said the Credit effectively doubles the support for small firms to 15 cents in the dollar and increases support for all other firms by a third, to 10 cents in the dollar.


The legislation will start retrospectively from 1 July 2011. The two core components of the Credit are a 45 per cent refundable R&D Tax Credit for small firms with turnover of less than $20 million and a 40 per cent non-refundable R&D Tax Credit for all other firms.


Senator Carr said the R&D Tax Credit would complement Clean Energy Future and build upon other initiatives like Enterprise Connect and Commercialisation Australia, to provide unprecedented levels of support for Australian innovative firms.


The R&D Tax Credit passed Parliament with the support of the Greens and all members of the crossbench in both houses.


However, the Australian Industry Group (AIG) has expressed its doubts over the effectiveness of the initiative, with the Ai Group Chief Executive Heather Ridout said saying she remains unconvinced that the Tax Credit Bill will be effective in supporting research and development will assist in industry sponsored research.


"We will be closely monitoring the take-up and effectiveness of the scheme and would urge the government to be open to future amendments," Mrs Ridout said.

"There is a lot of change in the scheme and how it is administered. It will be important for the government to make a substantial effort to build understanding in industry of these changes."


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