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Commonwealth Bank settles R&D claims dispute with ATO

AUSTRALIAN BUSINESS REVIEW   March 18, 2019   Chris Jenkins/ Joyce Moullaki

A Commonwealth Bank branch in Sydney. Picture: AAP

Commonwealth Bank has settled a protracted dispute with the Australian Taxation Office over research and development tax credits it claimed for a huge core banking systems overhaul project.

The Australian reported in 2015 the bank had claimed up to $100 million in credits for work related to the project.

The settlement between CBA and the ATO came ahead of yesterday’s Administrative Appeals Tribunal that was due to hear arguments on the matter. The agreement covers claims made for the 2012 and 2013 financial years.

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

“All other prior year matters have also been finalised.”

Industry watchers estimated the settlement amount was in the tens of millions of dollars.

CBA said the amount involved was not material to its results. A spokesman for the bank declined to discuss terms of the settlement, saying only that CBA would continue to work with the ATO and ISA on R&D-related matters.

In a separate statement, ATO Deputy Commissioner Rebecca Saint said the resolution of the CBA matter was an important development in ensuring the “R&D tax incentive is working for innovative Australian businesses as it was designed”.

Ms Saint said the ATO could not comment on specific taxpayer-related matters but warned large companies against pursuing R&D tax credits — which were primarily designed to assist new, smaller businesses be innovative — that they weren’t entitled to.

“This development sends a strong signal that digital transformation and software development costs do not automatically qualify for the R&D tax incentive,” she said.

“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.

“ 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.”

CBA’s decision to settle the ATO dispute reflects a broader, less combative approach to dealing with regulators after the bank endured a spate of scandals and regulatory scrutiny over the past two years.

In 2018, CBA agreed to settle a case with Austrac regarding breaches of anti-money laundering and counter-terrorism financing laws. The bank eventually paid a fine of $700m.

In the same year, CBA also agreed to pay the corporate regulator to settle an interest rate-rigging action.

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