Ombudsman investigating treatment of small business in relation to R&D claims

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell is concerned by reports the government clawed back $200 million in the 2018 financial year from businesses who have claimed the R&D Tax Incentive.

As a result, the ASBFEO has announced an investigation into the impact of the ATO’s policy and enforcement practices on small businesses.

“My office has received a number of complaints from small businesses about unfair treatment in relation to their research and development tax incentive claims by the ATO and AusIndustry,” Ms Carnell said.

Of particular concern, Ms Carnell said, are audits going back several years, which have resulted in the ATO demanding businesses repay the R&D Tax Incentive, often with a severe penalty applied.

“Unfortunately some of these businesses have been told to pay back the tax benefit years after the R&D has been completed. This is well after they received the refund from the ATO and reinvested that money back into the business,” Ms Carnell explained.

“Most of these businesses were genuine in their belief they were undertaking R&D and that their claims were totally justified.”

The ASBFEO has received additional feedback from software industry representatives claiming that the interpretation of the laws by AusIndustry and the ATO, regarding the eligibility of software claims, has become more rigid.

“These issues have prompted a review to clarify the R&D Tax Incentive legislation and how it’s enforced,” Ms Carnell noted.

“Certainty is essential if the R&D Tax Incentive is to fulfil the purpose of the legislation, which is to incentivise small businesses to invest in R&D.”

The Ombudsman also applauded the recent decision by the Full Bench of the Federal Court in the Moreton Resources Limited v Innovation and Science Australia case, which concerned the question of whether activities in relation to an underground coal gasification pilot facility were eligible for the R&D Tax Incentive.

“For Australian small businesses to continue to thrive, the government needs to support investment in science and research to drive innovation and growth,” Ms Carnell said. 

The Australian Small Business and Family Enterprise Ombudsman will deliver the findings of its investigation in a report to be published shortly.