Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 12 - Establishment of Innovation Australia

Outline of chapter

12.1 Schedule 12 to this Bill amends the administration and oversight arrangements for the Industry portfolio's innovation and venture capital programmes as prescribed in the Industry Research and Development Act 1986 (IR & D Act), the Pooled Development Funds Act 1992 (PDF Act) and the Venture Capital Act 2002 (VC Act). There are also consequential amendments to the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the programmes with taxation implications.

12.2 These amendments establish a new board, Innovation Australia, combining the roles, responsibilities and functions of the Industry Research and Development Board (IR & D Board) and the Venture Capital Registration Board (VCR Board).

Context of amendments

12.3 The Government has placed high importance on promoting and encouraging investment in innovation and venture capital to build industry competitiveness. This has been demonstrated through legislative enhancements to the Government's venture capital programmes (which received Royal Assent on 21 June 2007), extension of the Innovation Investment Fund, and a range of announcements in the Government's Industry Statement of 1 May 2007, including a significant enhancement to the research and development (R & D) tax concession.

12.4 At present the administrative responsibility for innovation and venture capital programmes is spread between two distinct bodies, the IR & D Board and the VCR Board. While the operation of these Boards has proven to be effective, the Government considers that the administration of both innovation and venture capital programmes can be enhanced and streamlined by combining their roles and the professional expertise of their members into a single body. The establishment of Innovation Australia is the means by which this will be achieved.

Summary of new law

12.5 This measure will establish a new board to be called Innovation Australia to administer and provide advice in relation to the Government's innovation and venture capital programmes. Innovation Australia will replace and assume the roles, responsibilities and powers of:

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the IR & D Board, which currently has responsibilities prescribed in the IR & D Act, the ITAA 1936 and the ITAA 1997; and

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the VCR Board, which currently has responsibilities prescribed in the PDF Act, the VC Act, the ITAA 1936 and the ITAA 1997.

12.6 Innovation Australia will also carry responsibility for past decisions of the IR & D Board and the VCR Board.

12.7 The amendments establishing Innovation Australia will be prescribed in the IR & D Act. A range of consequential amendments are required to the PDF Act, the VC Act, the Industrial Research and Development Incentives Act 1976 , the ITAA 1936 and the ITAA 1997.

12.8 The responsibilities of Innovation Australia that were previously carried out by the IR & D Board will remain prescribed in the IR & D Act.

12.9 The responsibilities of Innovation Australia that were previously carried out by the VCR Board will remain prescribed in the PDF Act and the VC Act.

12.10 The membership of Innovation Australia will generally mirror the arrangements of the IR & D Board, particularly in relation to numbers of members and appointment processes. Innovation Australia will comprise a Chairperson, an ex-officio member and 13 other appointees.

Detailed explanation of new law

Part 1 - Main amendments

Definitions

12.11 As Innovation Australia is to be established within the provisions of the IR & D Act, the object of that Act contained in section 3, which currently only refers to R & D and innovation activities, is expanded to also reflect the venture capital activities that Innovation Australia will be responsible for, as prescribed in the PDF Act and the VC Act. [Schedule 12, item 1, section 3]

12.12 A definition of 'Board' is contained in subsection 4(1) of the IR & D Act and used as the short reference to the IR & D Board throughout the IR & D Act. That definition has been redefined to mean Innovation Australia. A similar definition of 'Board' is contained in the PDF Act and it has also been redefined to mean Innovation Australia. [Schedule 12, items 1 and 54, the definition of 'Board' in subsection 4(1) of the IR & D Act and the definition of 'Board' in subsection 4(1) of the PDF Act]

12.13 A definition of a 'pooled development fund' is contained in the PDF Act. A definition of 'pooled development fund' has been included in the IR & D Act to cater for references to pooled development funds in the amended IR & D Act. [Schedule 12, item 7, subsection 4(1)]

12.14 A new provision is to be included in the IR & D Act relating to the giving of information to Innovation Australia. It determines that information is provided to Innovation Australia if it is provided to Innovation Australia itself, a member of Innovation Australia, a committee, a committee member, a member of staff, or a consultant. A similar provision in the PDF Act is to be repealed. A consequential amendment to the PDF Act is made to recognise the new provision in the IR & D Act. [Schedule 12, items 10, 57 and 58, section 4 of the IR & D Act, subsections 4(1) and (5) of the PDF Act)]

12.15 Consequential amendments to the definitions of 'appointed member', 'give information to the Board', and 'produce a document to the Board' are made in the PDF Act to align with definitions in the IR & D Act. [Schedule 12, items 53, 56 and 57, subsection 4(1)]

12.16 A definition of 'committee' has been included in the PDF Act to align with the committee provisions prescribed in section 22 of the IR & D Act as amended. [Schedule 12, item 55, subsection 4(1)]

Administration

12.17 In general, the administration role of Innovation Australia is being modelled on the legislative prescriptions already applying to the IR & D Board in Part II of the IR & D Act. A range of amendments are necessary to some sections of the existing Part II provisions to accommodate the change to Innovation Australia, as the new administering body, and to reflect its responsibilities under the PDF Act and the VC Act.

12.18 Part 2 and Part 9 of the PDF Act, which deal with the establishment, functions, powers and administration of the VCR Board, are to be repealed and amendments included in the IR & D Act to reflect the transfer of relevant matters to Innovation Australia. [Schedule 12, item 59, Parts 2 and 9 of the PDF Act]

12.19 Section 6 of the IR & D Act is the provision that established the IR & D Board - that provision is to be repealed and replaced with a provision to establish Innovation Australia. [Schedule 12, item 11, section 6]

12.20 Section 7 of the IR & D Act will outline the functions of Innovation Australia. The previous responsibilities of the IR & D Board will be retained in this section and amendments have been included to recognise Innovation Australia's responsibilities in relation to the VC Act and the PDF Act. [Schedule 12, item 13, paragraph 7(c) of the IR & D Act]

12.21 Requirements have been included in section 7 of the IR & D Act that Innovation Australia:

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evaluate and advise the Minister for Industry, Tourism and Resources about the operation of the IR & D Act, the PDF Act, the VC Act, and income tax laws as they operate in relation to those Acts [Schedule 12, item 12, paragraph 7(aa) of the IR & D Act]; and

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provide information obtained under Parts 2 to 4 of the VC Act to the Commissioner of Taxation [Schedule 12, item 14, paragraph 7(ca) of the IR & D Act],

to reflect requirements previously applying to the VCR Board.

12.22 Section 11 of the IR & D Act will outline the duties of the Chairperson of Innovation Australia. The existing requirement that the Chairperson inquire into applications made, or any other matter that he or she thinks necessary, is to be amended to reflect the widening of responsibilities to cover the PDF Act and VC Act as well as the IR & D Act. [Schedule 12, items 17 and 18, subsection 11(1) of the IR & D Act]

12.23 Under the IR & D Act, a distinction is made between an acting Chairperson and an acting member of the IR & D Board and they are prevented from exercising some responsibilities that would ordinarily be undertaken by the Chairperson or a member, such as granting leave of absence in the case of the acting Chairperson. The PDF Act has no such distinction or restrictions in relation to acting arrangements for the VCR Board. In relation to Innovation Australia, there is also no need for any such distinction or restrictions on the powers of an acting Chairperson or acting member, and appropriate consequential amendments to the IR & D Act are to be made to reflect this. In addition, some related provisions in the IR & D Act have been repealed so that paragraph 33A(1)(e) of the Acts Interpretation Act 1901 can be relied upon. [Schedule 12, items 2, 3, 5, 6, 8, 9, 15, 16, 19, 20, 21, 33 and 43, the definitions of 'acting chairperson' , ' acting member', and 'chairperson' in subsection 4(1) , paragraphs 4(7)(a) and (b) , subsections 11(1) , 16(4) , 17(8) , 18(8) , 20(5) , 21(7) and (8) and 22A(5) of the IR & D Act]

Ministerial directions

12.24 Under the existing section 19 of the IR & D Act, the Minister can give direction to the IR & D Board that it exercise an additional function that is related to the object of the IR & D Act. Section 19 will be amended to also allow the Minister to give Innovation Australia directions for functions relating to the objects of the PDF Act and the VC Act. [Schedule 12, items 22 and 23, subsection 19(1) of the IR & D Act]

12.25 A key element of the Government's desire to establish Innovation Australia, combining the expertise of the IR & D Board and the VCR Board, is for the Minister to be able to also formally call on the wealth of experience and knowledge of Innovation Australia members by requiring their advice on innovation and venture capital matters relating to their roles under the IR & D Act, the VC Act and the PDF Act. Section 9 of the PDF Act, which is to be repealed, provided for such a requirement. A provision has been included in these amendments to explicitly give the Minister the power to require such advice of Innovation Australia. To assist readers, this new provision also includes a statement that such a requirement is not a legislative instrument. [Schedule 12, item 24, section 19B of the IR & D Act]

12.26 Section 20 of the IR & D Act gives the Minister the power to give directions to the IR & D Board in relation to the policies and practices to be followed in the performance of its functions, but not in relation to a particular matter. This power is to be retained and some minor amendments have been made to reflect the wider responsibilities of Innovation Australia and some drafting improvements. [Schedule 12, items 25 to 27, subsections 20(1) and (4) to (6) of the IR & D Act]

Delegation

12.27 Amendments are required to section 21 of the IR & D Act dealing with the Innovation Australia's capacity to delegate.

12.28 The existing subsection 21(1) allows the IR & D Board to delegate all its powers to the Chairperson, another IR & D Board member, a committee, or a member of the staff assisting the IR & D Board. With the exception of the matters described in the following paragraphs these delegation powers will be retained and amendments have been included to also allow Innovation Australia to delegate its functions. In relation to any delegation to a member of staff, it would be expected that that staff member would be a senior officer. Provisions of the PDF Act relating to the delegation powers and acts of the VCR Board are to be repealed. [Schedule 12, items 28 to 32 and 34, subsections 21(1), (2), (3), (5) and (8) , paragraphs 21(3(a) and (b) of the IR & D Act ; item 65, sections 72 to 74 of the PDF Act]

12.29 Under the PDF Act, the VCR Board can delegate some of its powers and responsibilities, but has been prevented from delegating certain prescribed powers, for example, registering limited partnerships as 'venture capital limited partnerships' and revoking such registrations. The VCR Board has had to make such decisions itself.

12.30 With the establishment of Innovation Australia, it is intended that much of the day-to-day decision making will be delegated to committees appointed by the Minister for Industry, Tourism and Resources. Previously, the VCR Board was prevented from delegating certain decisions to a committee. Under these amendments, Innovation Australia will be able to delegate these decisions to a committee only. The remaining delegation restrictions relating to administration of the PDF Act and the VC Act, such as to the Chairperson, a member, or a staff member, will be retained. [Schedule 12, item 28, subsections 21(1) and (2) of the IR & D Act]

Committees

12.31 Section 22 of the IR & D Act gives the Minister the power to appoint committees as necessary for providing advice to the IR & D Board and exercising any powers delegated by the IR & D Board, and the power to appoint up to seven members of a committee, including a Chairperson, under section 21. These powers and other related provisions will be retained in relation to Innovation Australia and consequential amendments have been made to reflect the wider responsibilities under the PDF Act and the VC Act and amendments to section 21 of the IR & D Act. [Schedule 12, items 34 to 36 and 38, subsections 22(1), (1A), (2) and (7) of the IR & D Act]

12.32 An additional provision is to be included in relation to the appointment of committee members. Under the existing IR & D Act provisions a committee member can only be appointed for two consecutive terms and this is to be retained in respect of members. The additional provision will allow a member of a committee of Innovation Australia to be appointed for an additional two terms if that member is to be appointed as the Chairperson of a committee and had not previously been the Chairperson of that committee. [Schedule 12, item 37, subsection 22(2BA) of the IR & D Act]

12.33 Section 22A of the IR & D Act deals with the delegation powers of committees. These will be retained in relation to Innovation Australia with the exception of the delegation restrictions applying in relation to the PDF Act and VC Act as described above. Consequential amendments have been made to section 22A to reflect amendments to sections 21 and 22 of the IR & D Act. [Schedule 12, items 28, 39 to 42 and 44, subsections 22A(1), (2), (3) and (6) , paragraph 22A(2)(a) , subsections 21(1) and (2) of the IR & D Act]

Annual report

12.34 Innovation Australia will be required to submit an annual report to the Minister for Industry, Tourism and Resources, as have the IR & D and VCR Boards until now. The IR & D Act and the PDF Act contain detailed prescriptions of matters to be included in the annual reports. These same matters will need to be reported by Innovation Australia and amendments to section 46 of the IR & D Act are required to accommodate this. The annual report requirement in the PDF Act is to be repealed. [Schedule 12, items 45 to 47, subsections 46(1) and (2) , paragraph 46(2)(a) of the IR & D Act ; item 65, section 75 of the PDF Act]

Confidentiality and secrecy

12.35 Section 47 of the IR & D Act prescribes confidentiality requirements in relation to the IR & D Board, committees, staff members and consultants. These will be retained in relation to Innovation Australia. Amendments to these provisions have been made to strengthen the coverage to protected information, as defined, and more clearly define those people subject to the confidentiality requirements. [Schedule 12, items 48 to 52, subsections 47(1) to (3) of the IR & D Act]

12.36 Section 71 of the PDF Act sets out confidentiality requirements of the VCR Board which are specific to the sensitivities of the information dealt with in relation to the PDF Act and the VC Act. These provisions will be retained with some consequential amendments to reflect the other amendments to the IR & D Act and the PDF Act, including the definitions of a 'person to whom the section applies', 'protected document', and 'protected information'. [Schedule 12, items 60 to 64, subsection 71(5) of the PDF Act]

Part 2 - Consequential amendments

12.37 A number of consequential amendments have been made to the ITAA 1936, the ITAA 1997, the Industrial Research and Development Incentives Act 1976 and the VC Act to replace references to the IR & D Board and the VCR Board with Innovation Australia and reflect the amendments in relation to acting Chairpersons. [Schedule 12, items 66 to 71, paragraph 16(4)(m) , the definitions of 'Board' in subsections 73B(1) , 73BD(12) , 73BE(7) , 73BK(12) and 73BL(7) of the ITAA 1936 ; items 72 to 87, sections 43-100 (heading) and 43-100, paragraph 118-425(2)(b) , subsections 118-425(2) , 118-425(3) (note 3) , 118-425(14) (heading) , 118-425(14) , paragraph 118-427(3)(c) , subsections 118-427(3) , 118-427(4) (note 3) , 118-427(15) (heading) , 118-427(15) , 995-1(1) , the definitions of 'form approved by the Venture Capital Registration Board' and 'Venture Capital Registration Board' in subsection 995-1(1) of the ITAA 1997 ; items 88 to 90, the definitions of 'acting Chairperson' and 'new Board' in subsection 4(1) , subsection 4(1A) of the Industrial Research and Development Incentives Act 1976 ; items 91 to 278, subsection 1-15(2) , subsection 3(1) (note) , paragraph 3-5(c) , sections 3-15 (heading) , 3-15, 3-20, 7-1, paragraph 9-3(4)(a) , subsections 9-4(1) to (6) , paragraph 9-10(1)(b) , subsections 9-10(2) and (3) , 11-1(1) , paragraph 11-1(2)(l) , subsection 11-5(1) , section 11-10, subsections 11-15(1) to (4) , 13-1(1) , paragraph 13-1(1)(d) , subsection 13-1(1A) , paragraphs 13-1(1A)(c), (d) and (f) , subsection 13-1(2) , paragraph 13-1(2)(d) , subsections 13-1(3) to (5) , 13-5(1), (1A), (2) , 13-15(1), (3) and (5) to (9) , 13-20(1) to (3) , section 15-1, paragraph 15-1(h) , subsection 15-5(1) , sections 15-10, 15-15, subsections 15-17(1) to (4) , section 15-20, subsections 17-1(1) and (2) , paragraphs 17-1(3)(a) to (c) , subsections 17-1(5) , 17-3(1) to (4) , 17-5(1) , paragraphs 17-5(2)(a) and (c) , subsections 17-5(3), (4) and (6) , section 17-10 (heading) , subsections 17-10(1) and (2) , paragraph 17-10(2)(a) , sections 17-15 and 17-20, subsections 17-25(1) and (2) , section 21-1, subsections 21-5(1), (2) and (4) to (6) , 21-10(1) to (4) , 21-20(1) , section 21-25 (heading) , subsections 21-25(1) to (3) , paragraph 21-25(3)(a) , subsections 21-30(1) and (2) , Part 4 (heading) , Division 25 of Part 4 (heading) , sections 25-1 and 25-5 (heading) , subsections 25-5(1), (1A) and (2) to (6) , sections 25-10 (heading) , subsections 25-10(1), (1A) and (2) to (6) , section 25-15 (heading) , subsections 25-15(1), (1A) and (2) to (6) , section 29-1, subsections 29-5(1) and (2) , 29-10(1), (2) and (4) to (6) , paragraph 29-10(6)(b) , subsection 29-10(8) , paragraph 29-10(8)(a) , subsection 29-15(1) , sections 33-1, 33-5 (heading) and 33-5, paragraphs 33-5(a), (c) and (d) of the VC Act]

Part 3 - Transitional Amendments

12.38 Transitional amendments have been made to ensure that Innovation Australia will assume responsibility for decisions made by the IR & D Board and the PDF Board, including their Chairpersons and members, and authorisations on their behalf, and other ongoing administrative responsibilities or reporting obligations that lay with the IR & D Board and the PDF Board at the time they cease to operate. [Schedule 12, item 279 (Interpretation) , item 280 (Things done to a former Board before commencement) , item 281 (Things done to the Chairperson or acting Chairperson of a former Board before commencement) , item 282 (Things done by a former Board before commencement) , item 283 (Things done by the Chairperson or acting Chairperson of a former Board before commencement) , item 284 (Things done by a member or acting member of a former Board before commencement) , item 285 (Things done by a person authorised by a former Board before commencement) , item 286 (References to a former Board in Instruments etc .) and item 287 (Committees)]