R&D tax incentive stabilises as audits become ‘balanced’

Denham Sadler
National Affairs Editor

There is finally some stability around the research and development tax incentive, with long-mooted reforms implemented and audits becoming more balanced, according to an expert advisor on the scheme.

The research and development tax incentive (RDTI) has had a tumultuous recent history, with the Coalition originally planning to make changes to it amounting to a $1.8 billion cut, before scrapping these plans and passing a series of reforms last year.

These changes, including a refundable tax offset of 18.5 per cent above the tax rate for small firms and a new intensity measure to calculate the offset for larger companies, came into effect at the start of this financial year.

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The expenditure threshold has also been increased from $100 million to $150 million, while a number of administrative changes have also been implemented.

There have also been ongoing concerns around compliance, with audits by the ATO and AusIndustry of companies accessing the scheme, particularly around businesses making claims related to software activities.

In early 2017, software claims started to be reviewed following concerns advisory firms were encouraging companies to make claims that weren’t actually eligible. This led to a number of high-profile audits and clawbacks, with startup giant Airtasker ordered to pay back millions of dollars relating to RDTI claims in 2015 and 2016.

While this dispute is ongoing, Airtasker is now accessing the RDTI again, receiving a $575,000 offset in the last financial year, the company’s recent financial results confirmed.

This proves that there is now some much-needed stability around the scheme, Swanson Reed tax principal Damian Smyth said.

“We’ve gone through such an unstable period with the legislation, the proposed legislation and the regulators and interpretations of that. We’re hopefully approaching a point where there is some stability,” Mr Smyth told InnovationAus.

“We’d invite companies that did get scared off to go in with an open mind, make sure you review the guidance and make an assessment in good faith. Understandably companies got nervous during the crackdown period, so our advice would be to have a look at the current guidance and have an open mind.”

Airtasker’s dispute with the ATO relates to a total of $1.96 million in RDTI tax offset claimed in the 2014-15 and 2015-16 financial years. The company has received a $400,000 RDTI credit against the liability to the ATO for 2017 to 2019, and a $575,000 offset for the most recent financial year.

Audits of companies accessing the RDTI have become fairer and less punitive, Mr Smyth said.

“The audits are still happening, which is good, but they’re quite a bit more balanced and reasonable than they were a few years ago. We want to see a healthy level of compliance in the system, we don’t want it to get out of control. What we’re seeing is the compliance activity is fairly balanced,” he said.

“With AusIndustry, it’s now a lot more educational than reviews. They come in and give you feedback on where they think there might be concerns or where to provide additional information. That’s not always been the case – they’re trying to be fairly balanced now, it’s not the hard touch of 2017 to 2019.”

There has been a recent push for the federal government to establish a separate scheme entirely for software claims due to the ongoing uncertainty. This has been backed by many prominent members of the tech community, but Mr Smythe said this would lead to another long period of instability.

“The RDTI itself has been subject to so much instability over the past 10 years. If they were to implement a new system, then we’d have to go through legislation, consultation, implementation and potentially years more instability,” he said.

“Our hope out of this is if we can get to a point where there are reasonable boundaries on what’s allowable as software under the current infrastructure then that would possibly be the path of least resistance towards public funding of IT companies doing eligible, knowledge-generating activity.”

However, there are still significant concerns around software claims and the RDTI. Industry advocacy group Fintech Australia hit out at the regulators of the scheme recently, claiming they have a “strong bias” against software claims and that they take an “aggressive and adversarial” approach to companies accessing it.

Do you know more? Contact James Riley via Email.

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