Govt. seeking tax incentive more suitable for software development

A Government agency representing SMBs have called for reforms to the research and development tax incentive (R&DTI) to benefit software development efforts.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said in a submission to the Federal Government’s Financial Technology Inquiry that the current system is unsuitable for software development in its current form.

“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,” Carnell said.

“Alternatively a dedicated software development incentive should be created to promote investment and growth in the sector.”

Carnell said some 80 percent of the tax incentive claims are from small and medium enterprises, with 48 percent coming from the software development industry.

She also cited an ASBFEO report from December 2019 that found SMEs were subjected to examination and audit several years after the R&D was undertaken and the R&DTI refund had been spent.

“Often these affected businesses were required by the ATO to repay the R&DTI in full, with a severe penalty applied,” Carnell said.

“This has had a devastating impact on the businesses involved, with some discontinuing or scaling down their R&D efforts in Australia and reducing their R&D staff.

“Ultimately for SMEs to continue to invest in innovation and growth, it is critical they are supported in their R&D endeavours.”

The recommendations in the submission were also supported by industry peak bodies and private sector tech companies like Atlassian, she added.

“We welcome submissions supporting my office’s long-held position on this issue, including Atlassian’s reported ‘strong endorsement’ of an interim recommendation to clarify the existing scheme and put a time-limit on any potential clawback action,” Carnell said.

“At the end of the day we want small businesses to grow into big businesses such as Atlassian and a fit-for-purpose R&DTI scheme is a key support mechanism.”