Atlassian, Canva slam R&D tax changes

Denham Sadler
National Affairs Editor

Two of Australia’s most successful tech companies have railed against the federal government’s planned changes to the research and development tax incentive, just days before a Senate committee is expected to hand down its verdict on the controversial reforms.

In separate submissions to the Senate Economics Legislation Committee’s inquiry into the legislation, Canva and Atlassian raised concerns that the proposed changes would negatively impact startups and tech companies, and harm Australia’s economic recovery from the COVID-19 recession.

The two Aussie tech giants urged government to adopt a range of different reforms, including the payment of research and development tax incentive (RDTI) claims quarterly and a longer-term increase in investment in the scheme.

Scott Farquhar Atlassian
Aussie giants object: Atlassian co-chief executive Scott Farquhar

The changes to the popular RDTI scheme were first announced by the Coalition in the 2018 budget. The sweeping reforms include the introduction of a $4 million cap and linking of the offset to the corporate tax rate for SMEs, and the introduction of an “intensity measure” for larger firms.

The initial legislation was knocked back by the same senate committee last year before the government reintroduced the bill with some slight tweaks late last year.

The submissions from the large tech players were published online just days before the Committee is expected to hand down its report on the bill, and several months after submissions to the inquiry were closed.

In the submission, Atlassian chief executive Scott Farquhar and policy head Patrick Zhang said the RDTI is “more important than ever” in the wake of COVID-19, and the proposed reforms would damage the scheme for most companies.

“Today, research and development – including software R&D – sits at the core of Australian innovation and is vital to its future in a global knowledge economy. And the RDTI is the most significant program available to Australian companies to incentivise innovation,” the Atlassian submission said.

“Even before the COVID-19 pandemic, many technology companies were reliant on the RDTI to support them at the critical early stages of their business. In this continually evolving COVID crisis, the incentive is more important than ever to the economic recovery and revival of the tech sector.”

The changes to how the RDTI scheme applies to companies with annual turnover under $20 million would lead to a “significant decrease in refundable R&D offsets for Australian startups”, Canva chief financial officer Damien Singh said in a submission, while most larger companies will see their offset fall from 38.5 per cent to 34.5 per cent with the intensity measure.

The legislation also includes a number of new transparency measures, with details of companies claiming the scheme, including their name and the size of their R&D deductions, to be made public.

This could have some unintended consequences for tech firms, Mr Singh said.

A published increase in R&D spend, for example, could signal to competitors that a company is on the verge of launching a new product and lead to greater competition, the Canva submission said.

“It is unclear if the transparency objectives provide a true benefit to the Australian economy and should be tested further to understand if the benefits will outweigh likely costs.”

The changes will also be applied retrospectively to the 2019-20 financial year, which will have “unintended negative consequences”, especially for smaller companies that may fund R&D expenditure with bridging loans that are repaid when the offset is received, the canva submission said.

If the government goes ahead with the legislation, the changes should not be implemented until 1 July 2021 or later, Mr Singh said.

Instead of the proposed changes, which amount to a $1.8 billion cut to the scheme, the government should look to several “immediate, interim measures” to stimulate the growth of Australia’s innovation economy, both Atlassian and Canva argued.

These changes include a temporary moratorium on RDTI clawbacks, for RDTI payments to be made quarterly rather than annually, and for a one-time stimulus to encourage SMEs to access the scheme and conduct R&D.

In the longer term, the government should address the widespread concerns around software development claims and increase support for R&D “with reference to the higher tax incentives available in other OECD countries”, the tech companies said.

The government should be looking to increase support to companies looking to conduct R&D, especially with the huge impact of the COVID-19 pandemic, instead of making cuts, Mr Singh said.

“Small-medium enterprises will require additional financial support due to COVID-19 and losing access to previously budgeted refundable R&D tax offsets will further reduce their ability to invest in needed innovation within Australia,” he said.

“We see research and development as fundamental to furthering Australian innovation and to growing the Australian economy, especially post-COVID. In this continually evolving COVID crisis, the incentive is more important than ever to the recovery of the Australian economy.”

The senate committee is due to hand down its report on the RDTI changes on Monday, after several delays due to the COVID-19 pandemic.

Do you know more? Contact James Riley via Email.

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