ATO alert sparks concern for software development R&D Tax Incentives (TA2017/5)

Tax Insights

The recent alert issued by the ATO (TA2017/5), has raised some fears and concerns among innovators in established technology firms  as well as the start-up community.  

The concern is that AusIndustry and the ATO are out to get companies that claim the R&D Tax Incentive for software related activities or that AusIndustry and the ATO have developed a new, more aggressive interpretation of the program's criteria.


The reality is that there is not much that is new in this alert.

It merely reinforces messages that both AusIndustry and the ATO have been pushing out for some time now; that they are concerned about the eligibility, breadth and size of some software R&D claims. What is new about this alert appears to be the elevated level of concern that they harbour because of the growth in claims – both legitimate and those they see as of questionable quality.

Companies that have been undertaking R&D activities where genuine new knowledge has been developed using a systematic experimental process, and those claims have been prepared based on a well-founded and rigorous analysis of their activities, have nothing to fear from this alert. The alert merely restates the law and reiterates guidance that both the ATO and AusIndustry have published a number of times in the past.

Undoubtedly those in government charged with managing government expenditure are concerned about the growth of the R&D tax incentive program and, quite rightly, wish to ensure its integrity so that government money is spent prudently. But the program also stimulates significant economic benefit which feeds back into growth in employment, improvements in the international trade balance and, ultimately, growth in tax receipts. So the R&D Tax Incentive, where applied to legitimate R&D, should not be seen as a cost to the budget but, rather, as an investment in Australia's future.

As the alert and press release say, some companies and advisors of questionable expertise have been filing claims that include activities that do not meet the legislated eligibility criteria. It is important that companies do adhere to the criteria and if they are not expert in the area, they seek properly qualified experienced advice. While the criteria may appear straight forward at first blush, there are complexities to the law and the way it should be correctly applied.

EligIbility criteria of R&D Claims:

An advisor should also be remunerated with a fee structure that has the right incentives to ensure the interests of the company are paramount and produces truly eligible R&D claims. Simple success based fees can drive advisors to inflate claims. RSM's fee model, by comparison, is built around providing value to our clients and an efficient review process. We only charge for the time we spend on preparing a claim and cap that at an agreed portion of the benefit to the client. That way we have an incentive to be efficient in our work as does the company. We also have no desire to raise the ire of AusIndustry or the ATO and so have an experienced team that apply rigorous processes to our review of R&D activities.

Companies that are clients of RSM, where we have undertaken your R&D review, can rest easy. Your R&D Tax Incentive claim is on solid ground.

Other companies that may have concerns are welcome to contact us for a health check of your claim.

Have a question About ATO (TA2017/5) or Software development R&D tax incentives?

Find out more from your local experts:

Melbourne Office
Richard Wraith
Principal, R&D Services

Perth Office
Stephen Carroll
Director, R&D Services

Sydney Office
Jessica Olivier
Principal, R&D Services


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