February 15th, 2021
The Government’s annual federal budget is traditionally delivered during May each year, however in 2020 it was deferred until October due to COVID. When the 2020 budget was finally handed down, it provided welcome news for the R&D Tax Incentive, since previously proposed budget cuts were replaced with alternate changes providing additional R&D tax benefits from FY22.
The Government’s 2021 federal budget (potentially an election year budget) is due to be handed down in May 2021.
InnovationAus has recently summarised a pre-budget submission to Treasury by Australian Investment Council chief executive Yasser El-Ansary. The submission called for:
- A relaunch of the R&D Tax Incentive to make it more friendly for software and FinTech companies;
- Improved guidance around making claims under the scheme, especially for software activities;
- A single, comprehensive, accurate and coherent repository of information for the programme to be established;
- The establishment of a co-investment fund for early-stage tech companies modelled on the Biomedical Translation Fund to be considered.
This submission by the Australian Investment Council follows submissions by Small Business Ombudsman Kate Carnell and software companies such as Wisetech and Atalssian, arguing that more needs to be done to improve the R&D Tax Incentive, particularly for software activities.
We would be surprised if there were any changes in store to the R&D Tax Incentive within the budget, and we in fact welcome some stability to the programme.
Swanson Reed’s position on this matter is broadly:
- We appreciate the efforts of all parties who lobby to preserve an effective 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 more balanced and 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.
- We are optimistic about the direction in which 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.