Aussie startup leaders call for collaboration with ATO on R&D Tax Incentive for software

Some of Australia’s highest profile tech entrepreneurs have written to the Australian Taxation Office to propose a collaborative workshop on the R&D Tax Incentive (RDTI) scheme as it applies to software research.

The letter, addressed to ATO Commissioner Chris Jordan, is co-signed by the likes of Atlassian co-founders Scott Farquhar and Mike Cannon-Brookes, and Canva co-founder Cliff Obrecht.

Other high-profile signatories include AirTasker founder Tim Fung, Brighte founder Katherine McConnell, Culture Amp founder Dider Elzinga and Deputy founder Ashik Ahmed, as well as StartupAus chief executive Alex McCauley.

In total, the 13 signatories represent 12 tech companies and organisations.

The signatories say the RDTI scheme is a “critical support mechanism” for fostering innovation in Australia.

They argue “strongly” that digital technologies and software development are “critical to the future competitiveness of the Australian economy”.

However, the letter lays out some of the well-worn concerns around the R&D Tax Incentive, and its applicability to software companies. Particularly, it highlights a “lack of mutual understanding” on R&D activities related to software that are claimable under the program.

This means businesses that may be competitive in the global market may be dissuaded from seeking the rebate. That’s particularly damaging for early-stage businesses and startups, “for whom the fiscal risk of retrospective tax rulings is too great to bear”.

All of this is despite the general intent of the government to support R&D for smaller businesses, the letter noted. Indeed, the 2020 federal budget rolled back a controversial suite of proposed changes to the scheme, which were highly unpopular with the tech community.

The current state of play also goes against “the OECD’s acknowledgement that support for smaller firms represents the greatest return on government incentives”, the letter adds.

When it comes to software companies striving to navigate the RDTI, issues arise because the processes involved in their research are “considerably different” to those that would traditionally be considered R&D.

However, software companies invest considerable capital into such activities, and are “globally recognised as a significant engine for economic growth and wealth generation”, the letter said.

Calls for collaboration

The signatories said they “do not feel this is an insurmountable challenge”.

The letter is not a demand for immediate action or a call to arms. Rather, it calls for a collaborative day-long workshop including experts and advisors from industry and government.

The idea is to come together and hash out a solution to better understand and define the very nature of software innovation, in relation to the RDTI scheme.

The group proposed a confidential workshop, conducted under Chatham House Rules — meaning participants can share what happened, but without identifying the identity or affiliation of any speaker — allowing both sides to speak openly about some of the issues and their concerns.

The letter comes amid broader calls to address confusion around the RDTI for software startups. In 2019, AirTasker was ordered to repay millions in incentive payments following an audit, which found its software research wasn’t eligible after all.

Speaking at the Select Committee on Financial Technology and Regulatory Technology, both McCauley and Small Business Ombudsman Kate Carnell have called for a whole separate incentive scheme entirely focused on software.

This isn’t the first time the tech community has joined forces to call for change around this issue, either.

Back in August 2020, a group of startup leaders — including many of the same voices — sent an open letter to Prime Minister Scott Morrison calling for better engagement on policies that affect the sector, and for a rollback of the proposed changes to the RDTI scheme.

Ultimately, at least part of that came to fruition, as the most controversial of the changes were wound back barely six weeks later.