Tax Alert: ATO crack down on research and development
The Australian tax system has significant incentives for taxpayers who undertake research and development (R&D) activities within their business. In fact, the current tax system allows refunds of certain tax offsets to assist with business cash flow.
What are eligible R&D activities?
R&D activities are generally experimental activities that are conducted for the purpose of generating new knowledge.
What is the R&D tax incentive program?
The R&D tax incentive program is jointly administered by AusIndustry and the Australian Taxation Office (ATO). The program is comprised of two core tax offsets for eligible entities conducting R&D activities:
- 43.5% refundable tax offset for eligible entities whose aggregate turnover is less than $20 million
- 38.5% non-refundable tax offset for other eligible entities
What are the basic eligibility criteria?
It is up to a taxpayer to self-assess as to whether an entity is eligible to register R&D activities and claim the R&D tax offset in any given year. The basic eligibility criteria to claim the R&D tax offset include determining:
- Whether the taxpayer is an eligible R&D corporation
- Whether the taxpayer has incurred notional deductions of at least $20,000 on eligible R&D activities
ATO crack down
In February 2017 the ATO issued the latest of a series of tax alerts warning taxpayers that they are increasing their focus on reviewing R&D claims for eligibility. In particular, the ATO is looking into R&D activities where some (or all) of the expenditure claimed for the R&D tax offset relates merely to ordinary business activities as opposed to eligible R&D activities.
Some indicators of the incorrect use of the R&D tax incentive program include:
- When a company registers multiple activities for the R&D tax incentive
- Some or all of the activities registered are broadly described and non-specific
- Some or all of the activities were undertaken in the course of their ordinary business activities and recharacterised as R&D activities at a later time
The ATO has also stated that in particular it will be focusing on entities claiming the R&D tax offset in the building and construction, agricultural and software development industries.
The Government’s R&D tax incentive program provides significant opportunities for relevant taxpayers. At the same time, it is important to review and meet eligibility criteria.
If you have any queries or should you wish to discuss further please do not hesitate to contact your Fordham Partner.
This publication has been prepared by Fordham Business Advisors Pty Ltd and Perpetual Trustee Company Limited ABN 42 000 001 007, AFSL 236643 (PTCo). Fordham is part of the Perpetual Limited Group. Perpetual Private advice and services are provided by PTCo. This information is believed to be accurate at the time of compilation and is provided in good faith. However, it contains general information only and is not intended to provide you with advice or take into account your personal objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.