The Australian Taxation Office (ATO) and Department of Industry, Innovation and Science (DIIS) have released two new taxpayer alerts as a warning to those not being careful enough in their claims or seeking to deliberately exploit the Research & Development (R&D) Tax Incentive program.
The R&D tax incentive encourages companies to engage in R&D benefiting Australia, by providing a tax offset for eligible R&D activities. In 2013–14, more than 13,700 entities spent $19.5 billion on R&D, claiming a benefit of around $3 billion.
ATO Deputy Commissioner Michael Cranston said the alerts relate to particular issues identified in the building and construction industry where specifically excluded expenditure is being claimed as R&D expenses. The alerts provide clarification for a wide range of businesses who had been incorrectly claiming ordinary business activities against the R&D tax incentive.
“The alerts are designed to clarify what can and cannot be claimed, and help businesses to avoid mistakes such as ordinary business activities being self-assessed as R&D activities,” Mr Cranston said.
“While most do the right thing, we are seeing some businesses in these industries and their advisors improperly applying for the tax incentive where the activities and expenditure claimed don’t match with legislative requirements.”
“For example, we have seen an increase in claims for ordinary business activity expenses, or for large parts of projects that do not correspond to the scale or scope of experimental activities. Ordinary business activities are not generally carried out with a purpose of generating new knowledge. We often see issues including claims that encompass whole of projects (where project, management, environmental and commercial risks are mistaken for technical risks) and where the activities use existing knowledge and expertise.”
“We are undertaking a range of compliance activities to address businesses and advisors deliberately doing the wrong thing and will take legal action against those who wilfully misuse the R&D Tax Incentive.”
The ATO and DIIS have developed a range of materials published online to support companies and their advisers in making sure they correctly apply for the tax incentive and maintain the right documentation to support their claim. The materials will also help businesses who may be unsure of their position, or who may make honest mistakes.
More information about the program, eligibility criteria, and how to access the incentive is available at:
business.gov.au - Research and Development (R&D) Tax IncentiveExternal Link
ato.gov.au - Research and development tax incentive