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Calls for significant change to the R&D Tax Incentive for software claimants

Calls for significant change to the R&D Tax Incentive for software claimants

“A need for ‘transparency and predictability’” has been called for by Kate Carnell from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

This urgent need for the overhaul comes only months after significant reforms to the Australian R&D tax incentive were passed in Parliament in October 2020. Despite the $2 billion investment into the regime resulting from the reforms, Carnell believes that more should be done to promote growth and investment in Australia’s R&D sector.

The ASBFEO has recognised the devastating impact that audits conducted by the regulators have on SMEs, particularly if they arise years after the refund was issued. This is not only discouraging businesses from applying for the R&D tax incentive but is leading to them discontinuing their Australian R&D programs and creates unnecessary pressures on companies that are already struggling with the impacts of COVID.

Carnell explains “Ultimately for SMEs to continue to invest in innovation and growth, it is critical they are supported in their R&D endeavours.”

In modifying the incentive eligibility requirements to ensure the incentive is clear and simple to claim, Carnell suggests that a software-specific R&D tax incentive should be created to cater specifically for the industry, which currently makes up 48% of R&D tax incentive claimants.

Tech giant, Atlassian, is also in favour of this claim, suggesting that the R&D tax incentive is not suitable for tech companies, as it lacks the clarity required for the software industry. Further suggesting that amendments should be made so the eligibly requirements are clear or that an entirely new incentive for software should be established.

So, what does this mean for software businesses right now? At this stage, there are no legislative reforms on the horizon or hints of the creation of a software-specific R&D tax incentive. Despite this, it is an exciting time for the incentive, with the recent passing of legislation bringing an increased offset for SMEs and a simplified intensity measure for larger companies.

If you wish to understand more about the R&D tax incentive and how it can assist your business on its innovation and growth journey, be sure to get in touch with our team here.

Are you interested in all things R&D? Check out some of our other articles. 


Co-written by Nicola Duffell.

The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.

Renee Levings
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