The Research and Development Tax Incentive scheme was established with the aim to boost competitiveness and improve productivity across the Australian economy. Companies were given a tax benefit to encourage them to engage in more research and development.
This R&D Scheme is considered essential for many startup businesses as this is the point that they invest in the establishment and growth of their business. The Scheme is said to account for about $3 billion in federal government expenditure each year.
According to the ATO, “Your eligibility to claim the R&D tax offset will also depend on where you are conducting your R&D activities and, importantly, what those activities are.”
Recently, the ATO and AusIndustry announced they would be reviewing many claims made under the schemed, focusing mainly on software.
“The ATO and AusIndustry are reviewing the arrangements of companies that are claiming the R&D Tax Incentive on software development projects where some (or all) of the expenditure incurred is on activities which are not eligible R&D activities”.
With the focus on developing new software, modifying existing software or acquiring and modifying off-the-shelf software.
As a result of this audit, many companies claims were rejected and they were made to repay the tax benefits they received as well as a penalty.
The Financial Review reported in December 2018 that start-up companies including the popular online service business, Airtasker, have been ordered to repay millions of dollars in funding received as part of the R&D scheme.
An audit revealed that a number of Airtaskers claims between 2014 and 2015 were rejected, meaning they have to repay the money as well as a 75% penalty. In the article it insists that Airtasker had engaged a professional advisor for the claims in contention.
This raises the question of the benefit of the R&D scheme and the risks involved. Especially for software development companies. Since the release of the Alert in 2017, companies have become more aware of the restrictions of the scheme.
In 2019, as long as companies are engaging a reputable advisor and are meeting the requirements, there should be no issues with receiving the tax incentives.
At the end of the day, it is the company's responsibility to ensure that their activities are meeting the requirements of the legislation. There is a checklist available for self assessing your R&D activities.