In a submission to the federal government’s Financial Technology Inquiry, Ms Carnell described the R&D Tax Incentive as 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,” she said.
“Alternatively, a dedicated software development incentive should be created to promote investment and growth in the sector.
“With 80 per cent 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 per cent) of all R&DTI claims come from the software development industry, so a transparent and predictable system is absolutely vital to those businesses.”
Ms Carnell said her recommendations to the government have been echoed by industry peak bodies and private tech sector heavyweights, including Atlassian.
“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,” she said.
“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.”
The ASBFEO office released a report in December 2019 which 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.
Ms Carnell said that these affected businesses were often required by the ATO to repay the R&DTI in full, with a severe penalty applied.
“This has had a devastating impact on the businesses involved, with some discontinuing or scaling down their R&D efforts in Australia and reducing their R&D staff,” she said.
“Ultimately, for SMEs to continue to invest in innovation and growth, it is critical they are supported in their R&D endeavours.”