The Research and Development Tax Incentive has recently been causing
headaches for some small-business owners.
Innovation is a major
driver of growth and prosperity for Australian small businesses.
According to federal
government research, innovative small businesses are 60 per cent more likely to
report higher income from sales and increased profitability.
Small-business innovation is also critical to the Australian economy. The Australian Innovation System Report found even though innovation-active businesses were only 45 per cent of all businesses, they account for more than 60 per cent of sales and employment.
Today’s start-ups are
tomorrow’s industry heavyweights and for the economy to grow, it needs lots of
small businesses with big ideas.
The Research and Development Tax Incentive (R&DTI) is essential for small businesses seeking to experiment to turn a new idea into a market-ready product or service.
“Many small businesses rely on the R&DTI and it is vital to have a transparent and predictable system.”
Many small businesses
rely on the R&DTI and it is vital to have a transparent and predictable
system that works for those businesses conducting research and development.
office has received a number of complaints from small and family businesses
about unfair treatment in relation to their R&DTI claims by the ATO and
This prompted a
comprehensive investigation by my team, which was recently completed.
The key finding is
that many small and family businesses have been subjected to retrospective
examinations and audits going back years, which in some cases have resulted in
the ATO demanding businesses repay the R&DTI, often with a severe penalty
These small and family
businesses have been subjected to stressful audit processes, well after they
have received the refund from the ATO.
Indeed, most of these
businesses were genuine in their belief they were undertaking R&D, their
claims were totally justified and they had already reinvested the money back
into the business.
Small and family
businesses reported inconsistent treatment. Some told us they felt somewhat
targeted by the ATO and AusIndustry.
Our report found there
has been a shift in the interpretation of R&DTI legislation, narrowing the
focus and leading to more claims being rejected.
Many of these changes
to the landscape have happened without advanced warning, consultation,
explanation or education.
Further, it seems valid small-business claimants have been caught up with those who have received bad advice from unqualified and, in some instances, unscrupulous R&D consultants. The real injustice has been that the small business has had to bear the brunt of heavy penalties, even when their consultant is registered with the Tax Practitioner’s Board.
While there are good
R&D consultants out there providing quality advice, they are concerned
about the uncertainty of the R&DTI program, telling us the goal posts keep
moving. It’s impacting their work, their business and the small businesses they
Both the ATO and
AusIndustry have heard these concerns and have pledged to update their approach
to R&DTI compliance checks to ensure better communication, guidance and
The purpose of the
R&DTI is to incentivise businesses to invest in research and development.
For Australian small businesses to continue to thrive, it’s critical the
government supports investment in research and development to drive innovation
Kate Carnell AO, Australian
Small Business and Family Enterprise Ombudsman
story first appeared in issue 27 of the Inside
Small Business quarterly magazine.