Technology companies: Insights into AusIndustry and ATO expectations

Technology companies: AusIndustry and ATO expectations

Dama Kumarasingham and Charlotte Poole share insights from AusIndustry and the ATO on their expectations of tech companies claiming the R&D Incentive.

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In a joint presentation delivered on 12 April 2016, representatives of
AusIndustry and the Australian Taxation Office (ATO) provided insights into
their expectations of technology companies claiming the research and development (R&D) Tax Incentive.

From an AusIndustry perspective, a key area of focus is the internal business administration (IBA) exception, which excludes from the definition of a core R&D activity development of software for the dominant purpose of use by the software developer (or a related party) for their internal administration.

AusIndustry expressed the view that this exception is not intended to be a broad reaching exclusion, and that the
following approach should be taken when considering its application:

  • the dominant purpose in this context is the one purpose that dominates all other purposes
  • when assessing whether or not the exclusion applies, it is necessary to
    consider individual activities, not the project as a whole.

Other areas of concern flagged by AusIndustry include technology
companies making 'whole of project' claims, rather than focusing on specific
activities, and claiming 'business as usual' activities as R&D.

The ATO also identified software development claims as a focus from a risk
management perspective, and flagged calculation of aggregated turnover and substantiation of expenditure as technical areas where more care needs to be taken by technology companies.

On a positive note for taxpayers, the ATO also confirmed that the regulators are working together to develop new products to assist taxpayers with their compliance obligations, with software development identified as an area where further guidance will be provided in the near future. 

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