11 May, 2018
‘Crackdown’ on R&D tax claims makes further clarity for startups critical
StartupAUS today called on the Government to ensure digital startups remain a core part of the R&D Tax Incentive in the wake of the scheme’s overhaul in the 2018 budget.
StartupAUS CEO Alex McCauley said, “Tonight the Treasurer provided the Government’s long-awaited response to the 2016 FFF R&D Tax Incentive review. On the whole the changes were fairly neutral for startups, with the government having listened to the sector’s advocacy in a number of key areas. But the Treasurer also noted the ATO would be ‘cracking down’ on the scheme, making clarifying the central role of digital startups in the scheme more critical than ever.”
Mr McCauley noted that while some of the changes recommended in the 2016 review had been introduced, the impact on startups would be limited.
“Among other things, the FFF review had recommended keeping a lid on costs by introducing a $2 million cap on refunds under the scheme. Startups around the country said that would hurt them, and thankfully the Government listened, raising the cap to $4 million. We see this as a good compromise position. At the end of the day we all want a sustainable, affordable R&D incentive scheme. The Government has also backed away from introducing a lifetime cap, which is positive.”
Mr McCauley noted that the focus on boosting the scheme’s integrity and ensuring it supported only genuine R&D was important to its sustainability. “We want to make sure funds from this program continue to support legitimate startups for a long time to come. That means keeping a tight grip on the scheme’s integrity.”
But he also noted that unless further clarity was provided, increased compliance mechanisms might drive claims by legitimate startups down.
“We’ve been saying for a while that this program has a narrow focus on research, to the exclusion of development. That makes it hard for startups – particularly in the software space – to be 100% sure about what they’re allowed to claim. A ‘crackdown’ therefore leaves them particularly vulnerable, even in circumstances where they’re legitimate companies trying to do the right thing. The stakes are really high here for startups and founders who often rely on this scheme for the survival of their business in its early stages.”
The new-look R&D Tax Incentive makes provision for Innovation and Science Australia to be able to issue public guidance and make binding rulings on what is and isn’t eligible to be claimed under the R&D Tax Incentive. Mr McCauley noted this would be an important focus area for startups: “This is crucial: we’ll need swift and decisive action by Innovation and Science Australia. We need to hammer home that digital startups, and the job-creating development work they are doing, are a core part of this scheme.”