April 12th, 2021
The AFR reported earlier in the year that leading technology companies (including Atlassian, Airtasker, Canva and Deputy, among others) had sent a letter to the ATO offering to convene a workshop with the ATO to “improve the understanding of software innovation in the tax office and, conversely, address any concerns the ATO has about software related claims.”
Under the “matters under consultation” section of the ATO website, it is now noted that:
- A collaborative workshop will be conducted shortly;
- The purpose of the consultation will be to improve the understanding between government agencies and the software industry on application of the Research and Development Tax Incentive;
- Attendees include key industry players such as Atlassian, StartupAus, Deputy, Canva and Culture Amp.
The approach of industry leaders follows concerns around the eligibility of software development activity under the R&D Tax Incentive, which were highlighted over the past year during the Senate select committee on financial technology.
These concerns have led to calls in some areas of the media that a new programme to support investment in software development be introduced, or that changes be made to the current R&D Tax Incentive to specifically clarify its applicability to software.
Swanson Reed’s position on this matter is broadly:
- We appreciate the efforts of all parties who lobby to preserve an effective and stable R&D Tax Incentive;
- The widely reported crackdown on software development activities under the R&D Tax Incentive did indeed occur during the period of approximately February 2017 to late 2019. We have however noted that in recent times, compliance processes for software development R&D claims have become reasonable. In particular we note that:
- AusIndustry (who jointly administer the programme and make findings on eligibility) announced in November 2019 that they were overhauling their compliance frameworks to enhance the programme for participants;
- A number of companies whose software claims were previously ruled as ineligible (including ASX listed company Xped) have been successful in challenging and reversing adverse eligibility assessments;
- AusIndustry have also published additional guidance on eligibility in recent months;
- The past five years has been a tumultuous period in the history of the Australian R&D tax system where the programme was subject to a number of actual and proposed changes to legislation and eligibility interpretations. We now call for a period of stability which would allow the programme to be most effective;
- Whilst new guidance and and an alignment between stakeholders of what is eligible under the current rules may be helpful, any substantial change, (or a new programme specifically for software development) would lead to even more uncertainty;
- We are optimistic about the direction that the programme is currently heading, and would propose a “wait and see” approach with respect to whether changes to the current programme, or an additional software specific regime is required.