The research and development tax incentive is still not suitable for tech companies and a new targeted scheme should be established to replace it, according to Atlassian and the Small Business Ombudsman.
In separate submissions to the ongoing senate inquiry into the FinTech sector, the tech giant and Ombudsman Kate Carnell both argued that more needs to be done to improve the research and development tax incentive (RDTI), beyond the changes announced in last year’s October budget, which saw the federal government abandon plans to cut $1.8 billion from the popular scheme.
Atlassian urged the government to take a long-term approach with initiatives like the RDTI, which lacks clarity around software claims currently. The government should either clarify eligibility of software or create a new scheme entirely just for software investments.
“Both approaches can and should seek to simplify administration of the scheme, by limiting the application of software-related R&D claims to organisations that are developing software as part of externally-facing product development, or for whom software is their primary product,” the Atlassian submission said.
“The RDTI as it currently stands has not, at its core, kept pace with the nature of software development, or the context and frameworks within which it occurs. What it means is increased uncertainty for businesses that may wish to claim under the RDTI, as a result of a combination of issues relating to both the activities that qualify for the RDTI as well as the types of costs and expenditure that can be claimed under it.
“We think that the complexity of these issues and their broader relevance provides the Australian government with a clear opportunity to take the lead in seeking to resolve them.”
These calls were backed by Ms Carnell in her submissions to the FinTech inquiry’s second issues paper, with the Ombudsman saying the current RDTI system is hampering investment and growth in the sector, and is unsuitable for software development.
“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,” Ms Carnell said.
“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.
“At the end of the day we want small businesses to grow into big businesses such as Atlassian and a fit-for-purpose RDTI scheme is a key support mechanism. Ultimately for SMEs to continue to invest in innovation and growth, it is critical they are supported in their R&D endeavours.”
The federal government had been planning for several years to cut $1.8 billion from the RDTI through a series of controversial changes, but backed away from this as part of the October budget.
Legislation already passed by Parliament late last year increased the offset size for smaller companies and introduced a simplified “intensity measure” to determine the size of the offset for larger firms.
The Senate Select Committee on Financial Technology and Regulatory Technology released its second issues paper in November outlining its areas of focus for the first six months of 2021.
Included in the core issues was further efforts to increase investment in R&D, after making interim recommendations around simplifying and clarifying eligibility for the RDTI.