Software in the Target Zone

Record keeping in R&D Tax Incentive Scheme


Software companies in Australia as well as the software industry in Australia has been growing in size and strength. One indicator that shows this is that software has now become the dominant industry sector claiming the R&D Tax Incentive in both the number of companies claiming as well as the amount of benefit they now receive from the scheme. While this is a great milestone for the Software industry in Australia, the rapid expansion has attracted the notice of the regulators who administer the R&D Tax Incentive.


The ATO in the past year has become more active in policing the R&D Tax Incentive Scheme. One area that they have identified as an area of concern for them are claims coming from the software industry. They have identified a significant number of software claims that don’t meet the criteria of the scheme. Based upon that they have released a taxpayer alert TA2017/5 to highlight this issue. The R&D Tax Incentive has a strict criteria as to what would constitute R&D and what would not.


The ATO and Ausindustry have found that claimants were not properly identifying the core and supporting activities. In some cases they were not specific enough and would lodge broad based claims. Companies have also been claiming business risk rather than technical risks, as well as claiming the use of off the shelf technologies.


While we at Innercode work hard to properly document R&D activities according to the legislation and guidance given by Ausindustry, unfortunately some other claimants have either been unaware of the requirements or have been poorly advised by their accountant or consultant. Software in R&D claims has always been an area of particular challenge, which is why we started Innercode to help the software community to access the R&D Tax Incentive. By specialising in software and high tech companies as well as working collaboratively with Ausindustry and the ATO to maintain best practices for documenting R&D we want to give our clients the greatest confidence in being able to lodge their R&D Claims.


At this stage we believe that the companies who may be affected are those who lodged the claim themselves without assistance, or used the assistance of a general accounting firm or an online platform that provides minimal assistance. We have witnessed claims prepared by all of those entities which we believe would fail an audit. If you know of anyone who may be affected, we may still be able to assist them to revise their application or prepare for a review or audit. You are most welcome to put them in touch with us. In addition if you have any concerns about your own application, we would be happy to discuss them with you.


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