Reports emerged in late 2018 that a number of technology businesses had faced demands from the ATO to pay back millions of dollars worth of funds accrued under the incentives scheme.
Among those was Airtasker, whose CEO Tim Fung told My Business at the time that despite his business’s best efforts to make sure everything was above board, “Airtasker has been asked to repay to the ATO 100 per cent of the R&D incentives provided over a number of years of participation in the program”.
According to Mr Fung, it was AusIndustry that objected to its accessing the R&D incentive, despite an ATO review clearing Airtasker and its governance process.
Now, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is investigating the clawbacks following a number of complaints from the SME community.
“My office has received a number of complaints from small businesses about unfair treatment in relation to their research and development tax incentive claims by the ATO and AusIndustry,” ombudsman Kate Carnell said.
“Of particular concern are audits going back several years, which have resulted in the ATO demanding businesses repay the R&D Tax Incentive, often with a severe penalty applied.”
Ms Carnell said that in some cases, the demands for repayment have come “years after the R&D has been completed”.
“This is well after they received the refund from the ATO and reinvested that money back into the business,” she said.
“Most of these businesses were genuine in their belief they were undertaking R&D and that their claims were totally justified.”
The ombudsman added: “We’ve had additional feedback from software industry representatives that the interpretation of the laws by AusIndustry and the ATO, regarding the eligibility of software claims, has become more rigid.”
As a result of these complaints, the ASBFEO is reviewing both the legislation around the R&D Tax Incentive and also its enforcement by the regulatory bodies, with a draft report due to be released “shortly”.
Ms Carnell also welcomed a recent Federal Court decision in the case of Moreton Resources Limited v Innovation and Science Australia, which found in the business’s favour that it was eligible to receive the tax break. She said the ruling had provided a degree of clarity around how the laws are to be interpreted.
“This case concerned the question of whether activities in relation to an underground coal gasification pilot facility were eligible for the R&D Tax Incentive. The court took a common sense approach and found in favour of Moreton Resources,” she said.
“For Australian small businesses to continue to thrive, the government needs to support investment in science and research to drive innovation and growth.”
The ATO website states that there are two components to the R&D Tax Incentive: a refundable tax offset for eligible businesses with turnover below $20 million, and a non-refundable offset for other eligible businesses.
In December, the ATO said that a number of sectors are the focus of compliance activities around the incentive, including information technology but other sectors as varied as agriculture, financial services, mining and property.
“Given that R&D tax offsets are often refundable, this presents additional risks that the ATO needs to ensure integrity over. One way by which the ATO ensures R&D claims are validly made is by undertaking targeted audits and reviews of R&D claims (both pre and post their issue), including to ensure taxpayers are able to substantiate how the expenditure they have claimed was incurred on R&D activities,” a spokesperson for the ATO said at the time.
“Where a claimant of an R&D tax offset is subject to [an] audit or [a] review, they will be invited to provide further information. When the claimant is unable to substantiate the R&D claim they have made, the ATO would deny it. Where the ATO denies an R&D claim, the claimant has the right to have the decision reviewed. In the first instance, this is by way of objection, and if the claimant chooses, through the courts.”