FinTech Australia says the government needs to include digital tech, including AI and cybersecurity, in its R&D Tax Incentive review

FinTech Australia has warned that financial and other digital technologies risk being unintentionally excluded from future innovation funding unless explicitly recognised in the federal government’s current Strategic Examination of Research and Development (R&D).

The fintech peak body argue its case in a submission to the R&D review’s expert panel, led by Tesla chair Robyn Denholm, alongside LaunchVic CEO Kate Cornick.

The review has issued six discussion papers this year. Papers 5 & 6, the final two, covered foundational research, and Government as an exemplar  with submissions closing a week ago.

The panel received 471 submissions as part of its discussion paper consultation.

FinTech Australia CEO Rehan D’Almeida said the absence of digital technology from the government’s five priority areas for long-term R&D focus — defence, health, agriculture, energy and resources — threatens to crowd out innovation in emerging sectors like fintech, AI, and cybersecurity.

“Every industry today leverages technology, so the term ‘digital’ can seem redundant,” he said.

“But with fintech in particular, there are world-leading innovations unique to Australia that may not qualify for the R&D Tax Incentive under the proposed framework. That’s our key concern.”

The R&D Tax Incentive (R&DTI) provides refundable offsets for small businesses and non-refundable offsets for larger companies, encouraging research and development activities that may not have taken place without tax support.

It’s been a key form of government support to bridge early-stage development gaps for startups. It’s also been a major financial boost for some of Australia’s biggest tech companies.

Recently released data revealed that Atlassian was Australia’s biggest recipient of the R&DTI, for the second year in a row, reporting more than $220 million in eligible R&D expenditure in FY2023.

Seek, Technology One and Cochlear are also in the top 20 claimants.

More than 6,000 small businesses, representing around half of the 12,956 claims, worth $16.2 billion, applied for the R&DTI in FY23.  Their average claim was $403,232.

The FinTech Australia CEO said its vital support for startups.

“It’s not an understatement to say that the R&D Tax Incentive is the lifeblood of the fintech and startup sectors,” D’Almeida said.

“We’ve consistently flagged this with policymakers. A narrow focus could undermine Australia’s future competitiveness.”

FinTech Australia’s recommendations include:

• Explicitly including digital technology (e.g. fintech, AI, cybersecurity) as a national focus area

• Modernising the R&D Tax Incentive to reflect software-led, agile innovation

• Introducing sector-specific eligibility criteria for high-growth digital startups

• Reforming the Early Stage Venture Capital Limited Partnership (ESVCLP) program to boost domestic capital formation

• Ensuring enabling sectors like fintech are not crowded out in funding allocations

• Maintaining predictability and simplicity in RD&I policy to support long-term planning

The Early Stage Venture Capital Limited Partnership (ESVCLP) program has been seen as a saw point for many angel and Seed investors because of its complexity and reporting demands, as well as eligibility requirements, and a lack of flexibility in certain rules.