Ombudsman calls for industry-specific R&D tax incentive

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has called for an industry-specific R&D Tax Incentive, as the current system hampers investment and growth in the sector and 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. Alternatively a dedicated software development incentive should be created to promote investment and growth in the sector,” said Carnell.

The Ombudsman’s recommendations to the federal government’s Financial Technology Inquiry have been echoed by peak industry bodies and private tech sector heavyweights, including Atlassian.

“With 80% of all R&DTI claims made by Australian SMEs, it is clear that many small and family businesses rely on the R&DTI to help fund their research and development. About half (48%) of all R&DTI claims come from the software development industry, so a transparent and predictable system is absolutely vital to those businesses,” said Carnell.

The R&DTI report, released in December 2019, found many small and family businesses were subjected to examination and audit several years after the R&D was undertaken and the R&DTI refund had been spent. Often the affected businesses had to repay the R&DTI in full, with a severe penalty applied. Carnell added that for SMEs to continue to invest in innovation and growth, it is critical that they are supported in their R&D endeavours.

“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 R&DTI scheme is a key support mechanism,” said Carnell.

Image credit: ©stock.adobe.com/au/Natee Meepian