Australian tech unicorns say R&D scheme misses the mark

Atlassian and Canva want the federal government to help startups emerge from COVID-19 to help rebuild Australia's economy.

Atlassian and Canva, arguably Australia's two most successful tech startups, have both asked the federal government to do more to support emerging businesses where research and development (R&D) is concerned, particularly in a post-coronavirus world.

"We see research and development as fundamental to furthering Australian innovation and to growing the Australian economy, especially post-COVID. In this continually evolving COVID crisis, the incentive is more important than ever to the recovery of the Australian economy," Canva said in its submission [PDF] to the committee currently probing Australia's R&D laws.

Similarly, Atlassian said in its submission [PDF] that R&D "sits at the core" of Australian innovation and "is vital to its future in a global knowledge economy". It said the R&D tax incentive is the most significant program available to Australian companies to incentivise innovation.

"Even before the COVID-19 pandemic, many technology companies were reliant on the RDTI to support them at the critical early stages of their businesses. In this continually evolving COVID crisis, the incentive is more important than ever to the economic recovery and revival of the tech sector," the now Silicon Valley-based, Nasdaq-listed, and UK-domiciled company said.

See also: Atlassian aims to deploy its recession playbook from 2009 in 2020

The Senate Economics Legislation Committee in February last year asked the Treasury Laws Amendment (Research and Development Tax Incentive) Bill 2019  to be taken back to the drawing board, saying at the time it recognised the need for government to maintain public confidence in the integrity and financial sustainability of the R&D tax incentive, but that it was not confident the introduced measures would provide exactly that.

The Bill remains mostly unchanged, with only minor tweaks being made to premium offsets.

If the Bill goes ahead, it would permanently increase the R&D expenditure threshold from AU$100 million to AU$150 million; link the R&D tax offset for refundable R&D tax offset claimants to their corporate tax rates, plus a 13.5 percentage point premium; cap the refundability of the R&D tax offset at AU$4 million per annum; and increase the targeting of the R&D tax incentive to larger R&D entities with high levels of R&D intensity.

Both Atlassian and Canva join the many that take issue with the Bill.

See also: Australian tech unicorn Canva suffers security breach

"We cannot support the Bill as it is currently drafted because it would reduce support for R&D at a critical juncture when government should be seeking to stimulate such spending and supporting nascent companies," Atlassian said.

Atlassian also pointed to other submissions that previously highlighted how the Bill had failed to address concerns raised by the tech industry, such as software development efforts being increasingly questioned under the program.

"But perhaps most glaringly, the Bill before the Committee was introduced long before the COVID-19 pandemic swept the globe and therefore fails to contemplate the current economic context," the company continued.

To help startups emerge from the pandemic, Atlassian has suggested instituting a temporary moratorium on claw-backs; paying quarterly refunds in advance of the tax cycle; and providing a one-time stimulus to eligible small entities using the R&D tax incentive as a vehicle.

According to Canva, rather than cut back on the R&D tax incentive, the government should take immediate, interim measures to stimulate the growth of the "innovation economy". These include applying any changes prospectively from 1 July 2021 or later and instituting a temporary moratorium on clawbacks; paying quarterly refundable R&D tax offsets to support further R&D activities; and, as if copied directly from the Atlassian submission, providing a one-time stimulus to eligible small entities using the R&D tax incentive as a vehicle.

The Australian Information Industry Association (AIIA) in April asked the federal government to not proceed with the proposed changes to R&D laws and instead increase the incentive to kick start the innovative tech sector coming out of COVID-19 lockdown.

With a long list of companies and organisations begging the government to pull the Bill, or at least listen to their views on how to make it practical, the Department of Industry, Science, Energy and Resources admitted in June it has not held consultations with the industry since it was asked to refine the Bill and that it is keen to push forward with the Bill as it stands, as "concerns have been noted".

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