CBA settles $100m R&D stoush over core banking software

CBA has settled a multi-year dispute with the Australian Taxation Office over a $100 million R&D incentive claim for software developed as part of its core banking modernisation project.

The exact terms of the settlement were not disclosed, but the bank said in a financial filing [pdf] that it had “entered into an agreement relating to the R&D tax claims”.

“Under the agreement terms, CBA has agreed to withdraw from all current proceedings with the ATO and Innovation Science Australia (ISA) before the Administrative Appeals Tribunal (AAT) in respect of the eligibility of R&D claims that were made for the years ended 30 June 2012 and 30 June 2013 relating to the CBA core banking modernisation project that involved digital transformation and software development,” CBA said.

“All other prior year matters have also been finalised.

“The agreement does not result in material impacts to CBA’s current or future year financial results”.

The CBA case, which was first revealed back in 2015, saw the bank try to claim R&D incentives for a multi-year IT transformation.

The case was reportedly behind a crackdown on claims made under the R&D incentive scheme, which resulted in Airtasker and other startups being told to pay back money they had claimed.

The ATO announced the crackdown back in February 2017, saying it was “reviewing the arrangements of companies that are claiming the R&D tax incentive on software development projects where some (or all) of the expenditure incurred is on activities which are not eligible R&D activities.”

The Tax Office acknowledged the settlement in a statement released on Monday afternoon, saying it was aware of the CBA's ASX release.

“While we cannot comment on specific taxpayer-related matters due to confidentiality laws, this development sends a strong signal that digital transformation and software development costs do not automatically qualify for the R&D tax incentive," said ATO Deputy Commissioner Rebecca Saint.

"This is an important development in ensuring that the R&D Tax Incentive is working for innovative Australian businesses as it was designed.

“The ATO is committed to supporting innovation of Australian businesses, however, activities must meet strict legal criteria to qualify for the R&D tax incentive," Saint continued.

"Just because a project is large, expensive or risky does not mean it necessarily qualifies as R&D for the purposes of the tax incentive."

The Australian Financial Review reported at the end of last year that the scheme experienced a "$3 billion cost blowout ... against a planned expenditure of $1.8 billion a year",