R&D Tax incentive crackdown sparks calls for greater due diligence
This article was provided by APSCo Affiliate Member, Oncore.
Australian business-owners are being warned to practice enhanced due diligence when selecting software suppliers in the wake of a crackdown on a common tax incentive.
Designed to encourage companies to invest in developing new products and ideas, the research and development (R&D) tax incentive allows businesses to claim generous tax offsets.
But concerns by the Australian Tax Office that incentive was being misused has led a tightening of compliance measures, potentially forcing affected firms to repay millions.
The alarm was raised by the ATO in a taxpayer alert from February 2017 after it noticed a pattern of large firms claiming the incentive for digital transformation efforts that did not strictly meet the definition of R&D.
Founder and Executive Director of Oncore, Brenton Henderson says, “businesses of all sizes must act in full compliance. When others are relying on your services, taking short cuts is not an option.”
The crackdown has made it significantly more difficult for tech-focused businesses to meet the requirements, leading to fears that they may be completely locked out of the grant.
Tech SMEs are particularly concerned that the changes could significantly raise their effective tax rate, requiring radical restructuring or downsizing to cope with reduced profits.
While the direct risk to these firms is considerable, what must also be taken into consideration is the secondary impact these changes could have on the broader economy.
With Forbes reporting that more than three-quarters of all firms surveyed rely on at least one cloud-based application or segment of infrastructure to function, the financial failure of a software supplier could have an immediate and damaging impact on thousands of Australian businesses.
Oncore CEO Damian Bridge said that as the effects of the compliance changes were felt across the industry, businesses needed more than ever to closely scrutinise both potential and current suppliers.
“Turn over every stone – don’t just ask for balance sheets; check profit and loss statements, trading references, audit papers, anything that will help you understand the company’s position,” he said.
“Do your due diligence and do it well – smart operators will dig deep before appointing suppliers.”
When vetting a potential supplier to your business, Bridge recommends asking for a second opinion to ensure compliance requirements are being met.
“Longevity is also a good indicator of a sustainable relationship. Clients today are reassured to find we’ve been in business for over 20 years.”
Bridge noted that fears from some that the entire Australian software industry could fail in the wake of the grant clawback were unfounded, highlighting the bright future ahead for the sector.
“It is important at a Federal level, that we continue to invest in local R&D for the Science and Technology industries, however, the sector is booming regardless. For us, it is about developing and integrating with smart technologies that have a real and lasting impact on the way we work in the future.”