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Lobbying for Enhancement to R&D Tax Incentive for Software Development Activity

In September 2019, the Senate resolved to establish a Select Committee on Financial Technology and Regulatory Technology to inquire on a range of matters including “the effectiveness of current initiatives in promoting a positive environment for FinTech and RegTech start-ups”.

This committee signifies that the government considers Fintech to be an industry of strategic importance.

As part of the inquiry, the Committee has taken submissions, and a number of key stakeholders have raised the R&D Tax Incentive, which is obviously key to supporting start-ups.

Submissions to the inquiry by Small Business Ombudsman Kate Carnell and Atlassian have argued that more needs to be done to improve the R&D Tax Incentive, beyond the widely applauded changes announced in the government’s October 2020 budget.

As summarised on InnovationAus, the submissions have highlighted that there are areas of complexity and uncertainty with respect to eligibility of software development activity under the R&D Tax Incentive.

Ms Carnell’s submission stated that, “The R&D Tax Incentive eligibility requirements need to be changed so that it is clear and simple to claim tax incentives under the existing scheme. Alternatively, a dedicated software development incentive should be created to promote investment and growth in the sector.”

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 work of the Small Business Ombudsman in particular has been vital in enhancing the programme for all participants;
• 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 have 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 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.