Fintech Australia wants eligibility of R&D tax incentive to be expanded
Fintech Australia has come out swinging at how Innovation and Science Australia's (ISA) "strict interpretations" of what classifies as innovation has hindered the ability of Australian fintechs, startups, and technology companies' to access the R&D tax incentive (R&DTI).
Speaking to the Senate Select Committee of Financial Technology and Regulatory Technology on Friday, Fintech Australia chairman Stuart Stoyan explained that many fintechs and other technology companies focused on software development are being disregarded as eligible applicants for the R&DTI.
"The assertion that innovation cannot happen outside of a petri dish is ludicrous. You see a bias and a very strong opinion from ISA that unless … it's in a laboratory, or if true 'chemistry' is happening, then it's innovation," Stoyan said.
He pointed to whether ISA would hypothetically consider Atlassian to be eligible for the R&DTI.
"[ISA chairman] Andrew Stevens was asked earlier this week, 'Would Atlassian be considered eligible for R&D tax incentives?' His comment was 'No, because it's software'. For him to sit there and say one of Australia's most innovative companies on a global stage is not doing work that constitutes as doing true R&D, it gives a case to move offshore," Stoyan said.
At the same time, he added that those who have been successful in the past fear reapplying for the R&DTI due to clawbacks.
This view was shared by his colleague Simone Joyce, Fintech Australia director and Papaya Plane founder, who admitted that she was previously successful when she applied for the R&DTI.
"We applied two years ago and were successful … but I chose not to attempt last year because I just felt it was too risky for a clawback to happen," she said.
"We could frame a lot of what we were doing as experimental because we didn't have paying users. Once you move past the paying user phase and start releasing software from your normal software development … it becomes more difficult as brand new research and development."
See also: Why Westpac is making 'frenemies' with fintechs (TechRepublic)
The views were not too dissimilar to ones shared by Australian Small Business and Family Enterprise Ombudsman Kate Carnell.
Late last year, she expressed how she had "grave concerns" about how the Department of Industry, Innovation, and Science (AusIndustry) and the Australian Taxation Office (ATO) had approached administering the R&DTI, criticising it as being "untimely, inconsistent, and in many cases targeted".
"We identified an overall 'shift' in the way the R&DTI legislation has been interpreted over the last three to four years; a narrowing of focus leading to a rejection of claims, which in previous years had been regarded as low risk," Carnell said.
"The way the program has been administered has created uncertainty amongst companies and their advisors and has undermined the policy intent of the R&DTI legislation."
The criticisms had come off the back of Treasurer Josh Frydenberg reintroducing legislation into Parliament to reform the R&DTI in December.
He said the reforms would "ensure that the tax incentive remains an effective and sustainable part of Australia's overall support for R&D".
"In better targeting and improving the integrity and sustainability of the research and development tax incentive, the reforms in this bill will ensure that the incentive remains an important part of the government's overall support for research and development in Australia," he said.
Earlier this month, the Senate referred the Bill to the Economics Legislation Committee for an inquiry. A report is due to be handed down by 30 April 2020.
During the public hearing on Friday, Fintech Australia also took the opportunity to address how Australian entrepreneurs have not received the same support as equivalent global counterparts in the United Kingdom or Singapore due to the lack of resources held by the Department of Foreign and Trade (DFAT) and Austrade.
"We believe with the resources that they have, they do a good job. But their resources are very limited and are not getting the support other nations offer," Fintech Australia CEO Rebecca Schot-Guppy said.
"A good example of this is that DIT (Department of International Trade), the UK body, has both five people on the ground in Australia focused on financial services, export and import, and we have one person in Australia who focuses half the time on it, and one person in London to support the growth of Australian companies."
Senate Select Committee members asked Austrade whether it believed enough resources were being devoted to assist Australian entrepreneurs looking to export and expand into global markets.
"Austrade is involved in areas that the Australian government tells us to be involved in, and they tell us they want us to be involved in fintech, but also in a range of other areas, so we divide our resources -- 1,000 staff across Austrade -- so we are thinly spread, but we try and be effective in what we do," said Austrade government and partnerships A/G general manager Margaret Bowen.
Just yesterday, Austrade announced it had made improvements to its Landing Pad initiative, with support for fintechs to expand into international markets being among them.
The Australian government kicked off its startup Landing Pad initiative in early 2016, having initially announced it as part of former Prime Minister Malcolm Turnbull's AU$1.1 billion National Innovation and Science Agenda in late 2015.
The Landing Pad initiative has been touted as being designed to help Australian entrepreneurs bring their ideas to market and build high-growth and high-return enterprises.
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