Startup Victoria R&D Tax Incentive Amendment Submission

Startup Victoria creates community Submission for the Treasury Laws Amendment to the R&D Tax Incentive Bill

In March 2020, the Economics Legislation Committee collected Submissions in response to the proposed Amendments to the R&D Tax Incentive Bill. This provided the startup community with an opportunity to formally submit opinions and proposals in writing. Whilst Startup Vic is not a formal policy lobbying agency, we do manage the startup community here in Melbourne and feel it is our responsibility to share the views of founders with those in decision making positions.

There is a general sentiment amongst the founders in our community that sharing their feedback in a direct submission will lead to increased scrutiny of their business. To alleviate this fear, we created a community submission. We asked the community to share feedback on their experience with the R&D Tax Incentive and on the Treasury Laws Amendment to the R&D Tax Incentive Bill (Amendments). We collated the most important and common requests in our submission shared below.

Treasury Laws Amendment to the R&D Tax Incentive Bill Community Feedback Summary

  • Provide a significant long-term commitment to Australian startups – Startups need to feel supported by the Australian Government to enable structured planning for long-term growth. The R&D Tax Incentive funding has been steadily reducing for the last 3 years making it challenging for businesses to plan for the future. In addition, there are startups entitled to the R&D Tax Incentive who have chosen not to access the funding due to the uncertainty of the scheme and concerns that the administrative overhead potentially outweighs the benefit.  Regulation and governance are important, but balance this with certainty and a long term commitment to Australia’s startup ecosystem.
  • Focus on startups – The Australian Government should be focusing on increasing access to the R&D Tax Incentive to smaller companies where their spending may have a greater impact rather than targeting larger entities to avoid inappropriate claims from well-capitalised and established businesses.
  • Technology startups are key to economic growth and rely on the R&D tax incentive to build the innovations that will drive growth and employment – Technology startups are key to fostering innovation and creating future-proofed jobs and the R&D tax incentive is often key to their survival prior to being able to generate sufficient revenue to survive or attract investment. 
  • Regulate professional service providers – Many startups have paid credible professional service providers (e.g. ‘the big four’) to manage their R&D Tax Incentive claims. Unfortunately, these firms have been known to provide bad advice or make errors in submissions, putting the startup at great financial risk when things go wrong, rather than the advisory firm. Recommend establishing an independent ombudsman for R&D Tax Incentive professional service providers to protect startups. 
  • Create clearly defined rules for different types of businesses – It is important to clearly categorise entitlements for different stage/size businesses and adjust how R&D is defined in each context (e.g. the difference between deep tech and software development). This distinction should also apply to reporting requirements, as the administrative burden on early-stage companies can significantly impact their core growth efforts. Recommend setting governance rules relative to the size of each business, to ensure the government still encourages and supports growth and innovation in the tech sector.
  • Simplify language to make navigation easier – Make the language and accessibility simpler. Many smaller technology companies that are eligible for the R&D Tax Incentive do not understand the legal and Government language used to describe what the incentive is, how it works and what is required in managing a claim. Many eligible startups do not take up the incentive for fear they are ineligible or will make a mistake in their claim and put their business at risk. The R&D scheme should be accessible enough to empower startups to submit claims without having to rely on experts.
  • Set startups up for success in the event of an audit – Small companies are time poor and often make trade-offs about where to spend their time. Tracking R&D Tax Incentive activities in real-time may seem easy, but the reality is many founders will only do this after the fact for reporting purposes. This can lead to mistakes and lead to unreliable data. Recommend creating a self-service toolkit, where founders are able to track their activities and spend on R&D activities in real-time (rather than retrospectively).

“The whole process is time-consuming and fraught with risk. With the complexity of proving one’s activities, plus the threat of claim backs that would bankrupt many tech companies, it makes the whole thing rather daunting. It makes people cautious or want to move overseas.”

De-identified Melbourne startup founder.

With limited access to early-stage funding in Australia, our local founders are still heavily reliant on the cashflow support provided by the R&D Tax Incentive to survive in the early years of their business. Startup Victoria encourages the Australian Government to keep this in mind when proposing Amendments to the R&D Tax Incentive Bill.