Avoid ineligible R&D Tax Incentive claims

The Tax Office warns that it is working closely with AusIndustry to identify taxpayers involved in aggressive R&D Tax Incentive arrangements.

The ATO says some claims made for the R&D incentive have been negligent on the compliance requirements generally expected when making a claim, with some other instances even bordering on tax avoidance and fraud.

The program offers companies a way to claim eligible Research and Development (R&D) expenditure by way of a tax offset. The definition of R&D is very broad and applicable to all industry sectors to encourage innovation. However, the Tax Office and AusIndustry are scrutinising claims to ensure their legitimacy.

Eligible entities engaged in R&D may be eligible for:

  • a 43.5% refundable tax offset for eligible entities with an aggregated annual turnover of less than $20 million, provided they are not controlled by income tax exempt entities; or
  • a 38.5% non-refundable tax offset for all other eligible entities (entities may be able to carry forward unused offset amounts to future income years).

AusIndustry’s compliance work focuses on the eligibility of R&D activities while Tax Office work focuses on the R&D tax offsets allowable in respect of those activities. Both parties work together to undertake complementary risk assessment and compliance work.

The Tax Office says that it is concerned businesses and tax agents could be following R&D consultants’ advice without substantiation of expenditure or objectively assessing the advice, resulting in incorrect R&D tax incentive claims.

Errors often slow down the processing of any refund, as the Tax Office then has to verify the information submitted and confirm eligibility. The revenue collection agency has the following tips to help avoid those errors and prevent delays:

  • Check registration – check that you have registered your R&D activities with AusIndustry. You must register each year before lodging your R&D claim and your annual registration number must be included on your R&D schedule.  Each year check the timing when this needs to be done and if you use an agent then you may be able to get an extension of time. Check the registration deadline here
  • Ensure BAS lodgement is up-to-date – if you have overdue activity statements, lodge these before claiming.  BAS outstanding can impact your income tax.
  • Review grouping rules – to determine if you are eligible for an R&D tax offset, review the grouping rules (although note that the Tax Office quotes the old rates of 45% refundable and 40% non-refundable). If you have an aggregated annual turnover of $20 million or more, you are not eligible for the refundable tax offset, but may be entitled to the non-refundable tax offset

Here are the R&D incentive schedule instructions 2015. For the Tax Office’s FAQ page on the incentive, click here.  If you would like to make sure you get your R&D tax incentive claims right from the outset speak to one of our experts today.