The Australian Taxation Office (ATO) and DIIS (Department of Industry, Innovation and Science) have collectively released 2 new taxpayer alerts as a caution to taxpayers who are incorrectly claiming or intentionally exploiting the R&D (Research & Development) Tax Incentive program.
The R&D tax incentive program provides a tax offset for eligible R&D activities, and encourages companies to engage in R&D activities to benefit Australia. In 2013–14, more than 13,700 entities spent $19.5 billion on R&D, claiming a benefit of around $3 billion.
The alerts relate to issues that have been identified in the building and construction industry, where specifically excluded expenditure has been claimed as R&D expenses. The alerts also supply clarification for a range of businesses that have incorrectly claimed ordinary business activities against the R&D tax incentive. The alerts have been designed to clarify what can and can’t be claimed for R&D activities and should assist businesses to avoid making future claims incorrectly.
The ATO has seen a rise 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. The ATO is increasingly seeing issues including claims that encompass whole projects and where the activities use existing knowledge and expertise.
In another two separate alerts, the ATO has issued warnings to not claim the R&D tax incentive for software development and agricultural activities that are ineligible. AusIndustry and the ATO are reviewing company arrangements that claim the R&D tax incentive for agricultural activities and software development projects, where some/all of the incurred expenditure is for activities that are not eligible R&D activities. The ATO thinks there are examples in these sectors where companies are claiming ordinary business activities incorrectly as research activities. The ATO taxpayer alert specifies the ATO’s concerns regarding R&D claims and the types of arrangements that are under review.
The ATO is undertaking a range of compliance activities to address the businesses and advisors who are intentionally doing the wrong thing. Legal action will be taken against those who knowingly misuse the R&D Tax Incentive.
Contact Solve Business Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.