Google and Australian ISVs unite against Government R&D changes

You wouldn’t normally link global search giant, Google, with Australian ISVs such as eCorner or insyston, but the issue of R&D tax concession change has united them against the Government.

Earlier this week, a “firestorm of criticism” was launched by a variety of industry groups, taxation firms and private businesses against the Government’s plan to simplify and narrow the definition of R&D.

The changes are aimed at making R&D concession a tax credit and simplifying the system.

eCorner managing director, John Debrincat, supported the Government’s stated goals but claimed the proposal altered fundamental and necessary concepts within the description of what R&D is.

“It’s going to make it very, very difficult for a software developer to make those claims and get the tax incentives,” he said. “There are many, many SMEs out there that rely on R&D funding coming back at the end of the year to get them over the quiet times and to keep that extra couple of developers on staff without having to sack them. Those guys are going to struggle like crazy.”

Debrincat, who has claimed concessions for the past four years, said the planned changes worked against the Government’s stated goal of supporting Australian R&D and innovation.

“If you consider the work these companies do is going to be innovative and will help Australia become more competitive using technology, why would you want to stop it? Why would you want to create a roadblock?” he said.

The Australian Information Industry Association (AIIA) accepts the Government’s concerns about revenue and the potential cost of dodgy claims, but has come out strongly against the plans, claiming they go too far.

“[The reforms] claim that subsidising innovation without high risk… does no more than reward a company for doing what is ‘already commercially sensible’. The logical corollary of this is that subsidising activities that display both elements, rewards companies for doing what is not commercially sensible,” it said in a statement.

“The proposed amendments…will cause critical diminution in the level and quality of R&D carried out by Australia’s SMEs and others because it will be difficult or impossible to sustain the level of financial commitment necessary to support effective R&D.”

Google is also against the changes and has thrown its corporate weight behind the AIIA. The Search engine and applications developer opened its Sydney headquarters in June 2009.

But it’s the SMBs who are in most danger, industry pundits claims. insyston managing director, Stephen MacMillan, said the current R&D tax concessions are the difference between life and death for many businesses. According to Government figures, 88 per cent of all companies conducting R&D are SMEs.

“It’s been a saviour in the last 12 months. It’s one of the major reasons why we continue to invest in the improvement of our products,” he said. “The wording they’ve used in the new proposal actually excludes people trying to automate processes and procedures that improve businesses.

“It’s going to quash the whole side of the software sector that aims for efficiency and automation.”

Despite opposing the plans, MacMillan acknowledged Government and taxpayer concerns about rewarding companies for doing low-risk research which aim to generate private profits, rather than further the knowledge and prestige of the nation.

“Your normal working individual will say ‘does that mean my tax pays these guys to do their own work?’ I can understand the concern that people on the street would have and why Government can push it through,” he said.

“I think they’ve forgotten that small businesses still employ about 80 per cent of Australian workers. So if you put a number of these against the wall, the unemployment number is going to go up.”

But even with the support and best efforts of so many companies, MacMillan was already giving up hope of the Government changing its mind.

“My belief is they’re going to push it through and the majority of the voters aren’t going to care. I’m preparing for the worst,” he said.

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