Fintech Australia Submission Discusses Application of R&D Tax Incentive to Software

July 26th, 2021

InnovationAus this week has reported on concerns raised by advocacy group Fintech Australia in respect of the application of the R&D Tax Incentive to software activity.

The concerns were raised in the group’s submission to the Select Committee on Australia as a Technology and Financial Centre, and a summary of points raised include:

  • concern that regulators’ interpretations of “activities” and “experiments” under the scheme are restrictive to software claims and lead to many tech firms not accessing the incentive;
  • concern that regulators are blocking many tech firms from accessing the scheme and taking too strong an approach to audits and compliance;
  • concern that IISA does not view software development as innovative or as meeting the program’s definition of ‘R&D activities’, rather innovation and R&D activity needs to occur in a petri dish;
  • a call for the refundable R&D Tax Offset rate to be increased from 43 per cent rate to 65 per cent, and payments should be made immediately based on claims submitted for the 2020 financial year.

Swanson Reed appreciates the advocacy of Fintech Australia in respect of tech firms and the R&D Tax Incentive, however, we note that:

  • whilst there was certainly a crackdown on R&D Tax Incentive generally between 2017 and 2019 (particularly software claims) the current compliance environment has improved quite a bit, and anecdotally, compliance processes seem to be more balanced;
  • many ASX listed companies (including software developers) have announced over the past 2 years that they have been successful in appealing previous adverse R&D eligibility assessments;
  • AusIndustry announced in November 2019 that they were overhauling their compliance frameworks, which was potentially in response to the Ombudsman report;
  • AusIndustry have published guidance on the nature of software R&D Activities that are indeed eligible;
  • whilst an increase in the R&D Tax Offset rate would be lovely, it would not likely be feasible from a cost perspective. Instead, maintaining stability of the current rate should be the objective noting that R&D Offset rates have been subject to multiple cuts over the past decade.

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