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Innovative Security Software Development Shafted by Bureaucrats.

Saturday, 14 July 2012 17:03

Australian R&D software company, Armorlog Pty Ltd, has had the rug pulled out from under its development program by an ill-informed judgement by the ATO, despite having qualified for R&D funding under a Federal program.

Armorlog has devised innovative software to protect consumers from payment fraud and online phishing attacks. It is already available to install as an embedded solution under license, and it has been attracting significant capital investment.

Armorlog’s Managing Director, Louis Leahy states, “We have gone so far down the track since 2009 when we were accepted into the Department of Innovation’s R&D Tax Incentives Program. Now they want to close us down for a technicality – a technicality that is baseless.”

The Australian Tax Office are now wanting to reclaim tax credits previously granted to Armorlog’s development company, SOK Development Pty Ltd, because it maintains the professional services agreement between the parties is unenforceable and that unpaid amounts owing by Armorlog to the company claiming the tax credits might never be repaid.

“It is a totally false assertion for the ATO to say the agreement is unenforceable and not effective at law,” says Leahy. “This same agreement has been tested in the courts, in our favour, a number of times. The terms of the engagement document are those mandated for professional services agreements under legislation and required by the Accounting Professional & Ethical Standards Board (APES 305 Terms of Engagement). They have also ignored the requirements of our capital raising, that the balance outstanding by the development company is to be paid from the capital raising as a condition of accepting investor subscriptions.”

“The ATO’s one claim is that the development costs that have been accrued cannot be recognised for the tax credit because the prospect of recovery is “uncertain”. This has no basis in legislation and is based purely on case law, which in the first instance does not relate to these particular circumstances and has subsequently been superseded by newly enacted legislation,” Leahy said. “In any case to claim that uncertainty is a basis for not honouring the R&D credits is completely at odds with the intention of the R&D program for which we had already qualified and this is clear from the ATO’s own instructions.” Leahy also runs an accounting practice in Richmond.

The ATO is now claiming over $1.2million from the fledgling development group which has no capacity to pay and is now forced to cease trading to comply with insolvency laws. As a small business owner, the situation has left Leahy, his family and employees in turmoil.

Leahy believes that his vocal criticism of the inadequacies of AUSkey (the ATO’s own authentication solution) which competes with his technology, is behind their unrelenting attack. This has included 14 audits in rapid succession that have turned up nothing apart from the false claim the ATO has made regarding the services agreement. “It is an abuse of process,” said Leahy. “They have been desperate to come up with anything to justify the harassment.”

Leahy says, “The ATO could have assessed us on a consolidated basis if they didn’t want to honour the R&D commitment and we probably could have managed to carry on, but instead they are trying to tax us out of existence. They are endeavouring to subvert the objection and appeals process by winding up our trading entity before we have time to do anything. They are even taxing our development investment (capital) where no capital gain presently exists!”

“They have closed our business and are forcing us out of our home. It is all very corrupt and has left us feeling distressed, angry and powerless.”


Media Contact: Louis Leahy
Phone: 02 45713086
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