WiseTech Global has laid out potential reforms to the research and development tax incentive to fix the scheme for software development, with the Australian tech giant labelling the current system “inappropriate and problematic” for the sector.
In a submission to the parliamentary FinTech inquiry, the $10 billion software firm urged government to legislate an alternative methodology for determining eligible activities under the research and development tax incentive (RDTI) that is better suited for software claims.
The uncertainty around making software claims under the RDTI has been a prominent issue in the tech sector for several years. The federal government has released guidance detailing how software activities can be eligible for the tax offset but has not made any legislative changes to definitions under the program.
The RDTI eligibility is based on the scientific method, which is an “inappropriate and problematic model” for software development, WiseTech said in the submission, presenting a “significant obstacle” for local tech firms.
“Using it to assess eligibility is value-destructive to Australian technology companies who invest in R&D work that is subsequently found ineligible under the scheme. Other technology companies often decide not to invest in software R&D because they are unlikely to be successful in their claims under the scheme,” the WiseTech submission said.
“As the RDTI is aimed specifically at commercial organisations, which usually do not have research expertise or capabilities, an exact, inflexible definition of what constitutes eligible R&D activities hinders tech companies’ – and thus Australia’s – investment into innovation, rather than encouraging and increasing it.”
The legislation underpinning the RDTI should include the action research methodology to assess eligible activities, WiseTech argued in the submission. This method is designed to be used where there is uncertainty, and includes new knowledge and theory building as integral parts of the process, making it well-suited to the RDTI, WiseTech said.
“It purposefully generates new knowledge through a systematic progression of work for which the outcome cannot be known in advance. The action research methodology is specifically designed for creating knowledge in practical, applied circumstances where the outcome cannot be known in advance,” the submission said.
“The action research methodology aligns exceptionally well with R&D, where research is applied experimentally to a practical scenario, in order to create new knowledge while developing, or to use in the development of, an inventive technology, product or service by a company to use or sell.
“It also aligns with mainstream iterative, agile software development approach, while also embedding the work within a rigorous research approach that provides empirical evidence on what is the result of the intervention and the impact of this effect.”
Recognising more than one method of R&D would give the regulators more flexibility while still ensuring the scheme meets its aims, WiseTech said in the submission.
“We strongly recommend that action research is explicitly encouraged and legislated as one of several eligible methodologies to carry out R&D in the software and ICT industry that will further encourage R&D activities in Australia, thereby assisting the tech sector to drive growth in the Australian economy,” it said.
The second phase of the FinTech inquiry is likely to focus significantly on the RDTI and a number of potential improvements to the scheme.
In another submission, Atlassian said the scheme is still not fit-for-purpose for technology companies and clarifications should be made around the eligibility of software claims or a new scheme entirely should be stumped up for the tech sector.
The Small Business Ombudsman has also told the committee that the RDTI is still not working sufficiently for tech companies.
This post was originally published on InnovationAus.