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Swanson Reed in InnovationAus Article on state of R&D Tax Compliance

InnovationAus has this week published an article including comments from Swanson Reed regarding the state of R&D tax compliance, particularly for projects involving software development activity.

The article comes following a turbulent period in the R&D Tax Incentive, including:

• Multiple proposed and eventually passed amendments to the legislation underpinning the R&D Tax Incentive;
• A widely reported crackdown on claims involving software development during the period 2017 to 2019. Airtasker’s R&D tax dispute for FY15 and FY16 being the most publicised of these disputed claims;
• Changes to compliance processes and guidance published by regulators to improve the programme;
• Recent lobbying by the tech industry for a software specific R&D Tax Incentive;
• Airtasker reporting in August 2021 via their FY21 results that they continued to register R&D activities for FY17, FY18 and FY19, with the credits used to offset the earlier claims in dispute;
• A number of other companies having successfully settled (or partially settled) earlier disputed R&D claims.

A summary of the position discussed by Swanson Reed in the article is that:

• We are still seeing R&D Tax compliance activity being undertaken by the regulators which we support. Compliance activity is needed to keep up the integrity of the programme;
• The compliance processes we are seeing are much more balanced and reasonable than those that occurred during the “Crackdown” period of 2017 to 2019;
• We would encourage companies who are conducting eligible R&D activities that may have been previously scared off claiming due to reports of the crackdown, to review the current guidance published by the regulators. An assessment of their activities and documentation should then be made against the principles and examples in the current programme guidance;
• We appreciate the efforts of the tech industry in lobbying for a strong R&D Tax Incentive to support eligible activity. We are however not of the view that a dedicated, software specific R&D Tax Incentive is the answer to the challenges posed by application of the R&D Tax criteria to software development;
• We feel that using the existing programme infrastructure, and establishment of suitable boundaries (and guidance) for what constitutes eligible R&D activities in a software development context is the best path forward.