The Commonwealth Bank of Australia said today that it has reached an agreement with the Australian Taxation Office relating to R&D tax claims.
At issue were two years of claims under the R&D tax incentive scheme that the bank said related to its “core banking modernisation project that involved digital transformation and software development”.
The relevant R&D claims were for the years ended 30 June 2012 and 30 June 2013.
As part of the agreement, CBA is withdrawing challenges to ATO and Innovation and Science Australia (ISA) decisions that are before the Administrative Appeals Tribunal (AAT).
The R&D scheme is jointly managed by the ATO and the Department of Industry, Innovation and Science on behalf of ISA. It provides a tax offset for the cost of doing eligible R&D activities by reducing a company’s income tax liability. (The incentive replaced a previous R&D tax concession.)
In 2017 the ATO issued a warning that some Australian companies were availing themselves of the R&D tax incentive for ineligible software development work.
“Eligibility under the R&D Tax Incentive is based on specific R&D activities rather than on entire projects,” 2017 tax office guidance stated.
“Companies undertaking software development projects sometimes assume or assert that software development activities are by their nature eligible R&D activities,” the document said.
“However, it is extremely unlikely that all of the work involved in a software development project will meet the legislative criteria for eligible R&D activities. While a project may involve some experimental activities, that does not qualify the entire project as an eligible R&D activity.”
The Australian Financial Review in December 2018 reported that an attempt by CBA to claim an R&D rebate of $100 million for software development work helped trigger a crackdown on the incentive.