The Federal government has made no changes to the R&D Tax Incentive scheme in the Budget despite widespread unrest with the scheme among startups and a bunch of untouched recommendations sitting inside a high-power report.
The ATO has recently taken a harder attitude to claimants of the scheme, issuing a number of tax alerts.
“While most do the right thing, we are seeing some businesses in these industries and their advisors improperly applying for the tax incentive where the activities and expenditure claimed don’t match with legislative requirements,” said ATO Deputy Commissioner Michael Cranston in a statement in February.
“We are undertaking a range of compliance activities to address businesses and advisors deliberately doing the wrong thing and will take legal action against those who wilfully misuse the R&D Tax Incentive,” he said.
An alert in late February targeted IT and software firms where the ATO had become concerned claims were being made for software development work that did not involve scientific experimentation to seek out fresh knowledge.
The Biotechnology Industry Position Survey 2017 found fears around the ATO’s recent R&D alert had led several biotech outfits to put off plans to hire new staff.
The R&D tax credit scheme has created a mini-industry of finance organisations doling out short term loans to cash hungry startups based on their unrealised tax incentive entitlements.
As an example of the returns on offer, superfund Media Super recently launched a $30 million revolving fund for short term R&D tax-anchored loans and expects a rate of return of more than 6.8 percent a year.
Startup advocacy group StartupAus has argued the payments should be made quarterly to startups but to no avail.
Tweaks to the scheme had been hoped for in the Budget, especially after the long wait to a response from the review of the R&D tax credit scheme chaired by Bill Ferris, Alan Finkel and John Fraser. The review concluded in April 2016, was released for public comment in September 2016 and the government was to have given its response to the recommendations by ‘early 2017’.
The Budget did reveal that 15,750 entities had registered with AusIndustry in order to claim the tax incentive in the 2016-2017 financial year and that in the same period $19.2 billion in R&D expenditure was registered with AusIndustry.
The clock ticks on for the Federal government’s response to the ‘three F’ review.