Software developers and financial experts are up in arms over the Federal Government’s plans to radically change R&D tax concessions.
After months of consultation, the Department of the Treasury released the proposed changes for public comment on December 18. The existing system provides approximately $600-$800 million per year in tax concessions to companies conducting R&D.
Under the changes, the definition of “research and development” has been tightened and all projects must involve both considerable novelty and high levels of technical risk. Software has been especially hard hit, with research into the integration of off-the-shelf commercial and open source software refused concessions.
According to a spokesperson for the Treasurer, Wayne Swan, the changes are positive and will cut down on R&D that doesn’t benefit Australian taxpayers.
“The current definition of eligible R&D activities is allowing claims to be made for activities where there is not a strong rationale for public support,” the spokesperson said in an email. “The subsidy provided by the new R&D tax incentive is targeted at R&D activities that are more likely to provide greater benefits to the Australian economy.
“Foreign companies will also have greater access to the new R&D tax incentive than they do to the R&D Tax Concession, providing an inducement for more companies to conduct R&D in Australia.”
But NSW-based ISV, eCorner, is set to lose out after four years of claiming subsidies under the current system. Managing director, John Debrincat, said other companies could collapse without the support.
“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.
“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?”