The R&D Tax Incentive – Like the Footy Finalists, Take It One Week at A Time
A few weeks ago, we were chatting with the tax manager of a large engineering firm about the proliferation of briefing sessions currently being offered regarding the new R&D Tax Credit, to be known from today as the R&D Tax Incentive (the Incentive). We agreed that the whole thing seemed a little early as the Bills hadn’t yet passed and the views of the Government were yet to be heard.
From our perspective, we had attended two Government workshops about the Incentive in August and nothing substantive could be said by the authorities about matters of interpretation as the law was not yet in place. The tax manager went on to say that if the company’s technical staff heard that you may not have a claim if your predominant purpose was commercial, not R&D, a number of them would grab hold of this red card being offered and send themselves off so they didn’t have to help claim an R&D project ever again. We concluded that it would be best to learn a little more about the Incentive rulebook before we launched a whole new strategy for winning in the R&D game.
As we write this MJA Update, the Incentive is waiting patiently for Royal Assent. The word on the street is that this will be achieved around the middle of next week.
The understandable reaction from companies after such a long wait would be to get cracking and attend any briefing session on offer; start assessing what R&D now qualifies and begin installing new identification and costing systems. How else do you win the Grand Final?
Well, as any coach will tell you, you don’t get ahead of yourself, you play each game on its merits, you take the season one week at a time, and a litany of other sporting clichés in devising a successful approach.
And so we believe it should be with your response to the Incentive. Right now, we think that the best thing you can do is keep on doing what you’ve been doing with regards to the R&D Tax Concession. Keep identifying and tracking the same projects and the same costs.
And here’s why.
To Know the Rules, You Must Know the Umpire
You would be aware that the Incentive is to be jointly administered by AusIndustry, the Innovation Australia Board and the ATO. They are the refs and umpires and we all know that we need to work cooperatively with these bodies to achieve an effective transition to the Incentive regime. Right now, it is their views of the operation of the new legislation that we need to reference and understand before we can meaningfully respond as to how the Incentive affects taxpayers. The fact of the matter is that they have yet to publish their interpretations of the rules, let alone blow their whistles. Until they do, MJA believes it is way too premature to be attempting to determine a finalised approach to successfully claiming the Incentive.
As such, we advocate that you retain your current approach to identifying and documenting R&D that is currently eligible under the R&D Tax Concession (the Concession). Ultimately, the narrower definitions of the Incentive will mean that some of your R&D activities and costs that you track may not be eligible, but this can be reconciled towards the end of the first year of the Incentive, by which time the views of the administrators will be much better understood. Remember that nothing substantive about the interpretations of the new rules has been tabled by Government since the second Explanatory Memorandum back in the first half of 2010. If you speak directly to AusIndustry and the ATO at the moment, they can only respond with the fact that they can’t comment as the Bills are not yet law. All the rest of us can do right now is speculate on the impact of matters such as dominant purpose and feedstock and how the Government will interpret these new concepts.
What Is the Schedule for the Rest of the Season?
Through MJA’s membership of the R&D Tax Incentive National Reference Group (NRG), we have come to understand that the planned Government roll out will go along these lines:
- A national series of AusIndustry/ATO information briefing sessions which have just been announced for each of the capital cities from mid-September. Click on the link for the dates and to register your attendance. Initial guidance material will accompany these sessions.
- A discussion paper entitled “R&D Tax Incentive Guidance Discussion Paper” will be released in late October 2011 and a period of active feedback and comment will follow.
- Following the passage of the Regulations and Decision-making Principles, application forms for Advance and Overseas Findings will be released. This should occur before Christmas.
- In the first half of 2012, detailed guidance material will be published including sectoral guidelines covering manufacturing, mining, information technology, biotechnology, agribusiness and construction.
- The Registration application form is most likely to appear in the New Year.
As you can see, there will be several months to digest the Government’s viewpoints and requirements and the great unanswered questions will finally start to receive some useful answers.
Keeping Your Eyes on the Prize
At the appropriate time, MJA will run a series of free seminars to assist you in preparing to make your first claim. But we only intend to do that when we have something meaningful to discuss. In the interim, we will keep you posted courtesy of this Update. Remember, we want all of your team out there on the R&D paddock with everyone fully committed and enthused. Don’t get them looking for those red cards right now so they can risk taking you out of the game for the ultimate R&D prizes.
Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.
All I Want For Christmas Is A R&D Tax Credit That Works?
There is no better way to get a reality check on your viewpoint than when you are presented with a clearly opposing position. Such is the case with this week’s announcement that the Australian Information Industries Association (AIIA) has written to Minister Carr to support passage of the draft R&D Tax Credit (the Credit) legislation. While the AIIA concedes that the Bills are not perfect, it is attracted to a more rapid cash-back for SMEs and the fact that the legislation recognises that R&D in the Information, Communications and Telecommunications (ICT) sector is not a laboratory exercise comprising experiments and test tubes. The AIIA goes on to predict that the Bills will be re-introduced into Parliament in the Autumn sittings with a view to a July 2011 commencement.
In responding to these statements, we would note that the Credit definitely increases the number of candidate company groups able to access the cash-back aspect of the program but there is no indication that the ATO will be sending out its cheques more rapidly. Further, we are unclear as to how the AIIA has reached its conclusion that the new package recognises that ICT R&D is not a laboratory exercise, inferring that the current R&D Tax Concession (the Concession) takes that position. Previous MJA Updates have demonstrated our concern that the proposed changes to the definition of R&D activities run the risk of all corporate R&D being subject to a narrower lab-like regime, irrespective of the industry sector involved.
For starters, the new definition of core R&D activities requires them to be experimental as an isolated requirement. And supporting R&D activities will be subject to the new complexities of the dominant purpose test. Let’s take a closer look at this issue.
Dominant Purpose – Don’t Worry. Be Happy
When the Bills recently passed through the Lower House, the Assistant Treasurer, Bill Shorten, said “The dominant purpose test is a well-defined concept commonly used in tax law.” In short (no pun intended), there was no cause for concern about how the test would work in practice. This was in response to the Opposition amendment on dominant purpose. Yet the Opposition amendment, in common with the Greens amendment, the majority and minority opinions of the Senate Economics Committee and the vast majority of over 380 submissions referenced by the Assistant Treasurer all agree that the dominant purpose test in the Bill is a new, onerous and subjective test that will increase compliance costs and uncertainty and reduce encouragement for businesses to do genuine R&D. Further, Peter Thomas, Chair of Innovation Australia, confirmed in his evidence to the Senate Economics Legislation Committee that determination of which of any of the driving purposes of an activity is the dominant purpose is all a matter of judgement.
Given the extent of the concerns expressed, how does Mr Shorten reach his conclusion?
The dominant purpose test is present in a number of anti-avoidance provisions in tax law. Primarily, it is in Part IVA, the General Anti-Avoidance Rules (GAAR). In this regime, “the dominant purpose” is determined by a set of eight expressly defined and legislated rules that are used to determine which of all the possible dominant purposes in an arrangement is the dominant one. All the other anti-avoidance provisions either have rules to determine the dominant purpose or apply even if tax avoidance is not the dominant purpose.
Since its introduction in 1981, the Part IVA GAAR have been, to say the least, contentious, especially in the application of the dominant purpose tests. It has been a major focus of tax law court activity with notable cases like Hart’s case, Spotless and Macquarie Finance. It has been a major focus of ATO activity with rulings and taxpayer alerts aplenty. Interestingly, Bill Shorten announced a review of the GAAR on 18 November 2010 to focus on rewriting these rules to “improve the integrity, certainty and simplicity of the income tax laws”.
Hardly a ringing endorsement of a “well-defined concept”.
Unlike the GAAR and other tax law dominant purpose tests, the Bills contain nothing to determine how the dominant purpose is to be determined in relation to supporting R&D activities. It is not linked to any of the eight tests in the GAAR, so any of the court cases around these tests will have limited value as precedents. We will be starting with an essentially clean sheet if the Bills enact the proposed definition.
In the light of the above, MJA suggests that you should be worried about dominant purpose but you should always stay happy!
The New Assessment Regime – Don’t Worry. Be Happy
Well, actually, even the AIIA is worried about this one. They have commented on the increased audit and compliance activities associated with Concession claims directed towards the ICT sector, especially SMEs.
Again, we would suggest that this is a program-wide development. The Government’s recent consultative meetings about the new regime revealed that the program commenced back in July with, in fact, no consultation and no announcement. The new step of requiring written responses to questions on projects has massively increased the compliance burden on taxpayers selected for review.
Already, we are observing a number of problems with the approach. There is a lack of standardisation in the types of questions being asked, resulting in misleading questions and a number of inaccurate statements of the law. The responses are generally required within thirty days but AusIndustry will not commit to a timeframe within which they will process the received responses, thereby adding to uncertainty.
A key concern is that there is no guidance as to how much information should be provided in the responses. At the consultative sessions, AusIndustry indicated that many taxpayers are providing too much information. Given the lack of guidance and the fact that the types of questions are those normally attributable to s39L full audits, this is hardly surprising.
Of great concern is that taxpayers are being processed to the next step – a site visit – with no reasons being provided as to why the written responses provided did not satisfy AusIndustry’s requirements.
It seems that a new assessments industry might have sprung up to justify the large increase of resources announced in the 2009 Budget to deal with a Credit that failed to commence in July 2010.
MJA will follow up these concerns up with the Government with a view to getting parties around the table to assess the early performance of the new regime resulting in the introduction of equitable reforms in the process.
It’s The Festive Season – Don’t Worry. Be Happy
This brings to an end our trilogy of somewhat gloomy MJA Updates in the wake of the failure of the Bills to be enacted in 2010.
However, this failure creates opportunity anew to address the problems. It was a year ago when the first draft of the Credit arrived as an early Christmas present and we have all gone some way towards improving the Credit before it becomes law. The basic program remains a great idea. We still need to fix up the details for it to be a successful one.
Our agenda for 2011 is clear but right now is the time for us all to relax and catch our breath. We wish you and your family all the very best for Christmas and 2011. We look forward to alleviating all our worries about the Credit in the New Year so it can be a truly happy one for Australian innovation.
Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.
The New R&D Tax Compliance Framework
Over the last few months, AusIndustry has begun the roll-out of a new R&D Tax Compliance Framework. This framework is being applied to existing R&D Tax Concession claims and will be adopted by AusIndustry if a new R&D Tax Credit comes into operation.
AusIndustry recently conducted the first in a series of state based consultative forums to discuss operational issues related to the new compliance framework. This forum was held in Sydney on November 18 with a similar forum planned for Melbourne on Monday November 29.
The new compliance framework involves both State and National Office delivery with the process tailored to the nature and value of the R&D.
Small and Medium R&D Claimants
Small and medium R&D claims will be primarily managed by AusIndustry’s State and Territory Offices through a series of compliance activities that will escalate in intensity if issues remain unresolved and may ultimately lead to a statutory assessment. This process is collectively known as the Compliance Continuum and involves the following four stages:
- Registration Profile Review – review of registration documentation involving no contact with the registrant company.
- Registration Desk Assessment – the company receives a letter requesting specific information on a project’s R&D activities and their eligibility.
- Compliance Activity Review – will involve a site visit to the claimant company to discuss potential eligibility issues.
- Statutory Assessment – undertaken by the State and Territory Offices. Their decisions are legally binding but the claimant has the right to appeal. This will escalated to the National Office.
During each stage of the Compliance Continuum a company is judged to be either a ‘low’ or ‘high’ risk of meeting compliance. A ‘high’ risk rating will lead to the next stage of the compliance continuum.
Large R&D Claimants
Companies with large projects and high R&D expenditure will need to work with AusIndustry under an Active Case Management Strategy being managed by the National Office in Canberra. This process will involve a review of registrations by sector with the intent to seek independent expert advice on registered activities and on R&D in the sector generally. The key aspects of this framework will include:
- Larger matters to be progressed in close cooperation with the Australia Tax Office
- An independent expert opinion sought for each sector
- Projects or activities considered to have a high likelihood of ineligibility will be subject to statutory assessment to be undertaken by the National Office
AusIndustry has not provided any detail on the quantum of R&D expenditure which will determine whether a claimant gets assessed under the Compliance Continuum or Active Case Management framework.
Taxpayers should continue to approach their R&D claims with the same business as usual attitude. MJA looks forward to providing feedback and discussion on the compliance culture with AusIndustry and the ATO to ensure that it is effective and does not create an overly cumbersome compliance burden for companies.
Should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.
Senate Report on R&D Tax Credit Released
Report Contains a Series of Minor Recommendations Only but the Government Does Advocate Removal of Dominant Purpose Test for SMEs
The Senate Economics Legislation Committee (the Committee) released its Report into the R&D Tax Credit Bills (the Bills) yesterday. The Report sets up the debate in the Senate as to whether the Bills should become law prior to the proposed commencement date of 1 July 2010.
Overall, MJA is disappointed by the recommendations made by the Government in the Report and submits that the Dissenting Report of the Coalition Senators should be taken into account by the Senators on the cross-benches when the legislation comes to the vote.
When looked at in detail, the Government has recommended a series of minor changes to the Bill but has not undertaken any detailed analysis of most of the key concerns raised by so many of the stakeholders during the consultative process.
This is best illustrated by the Committee’s response to concerns raised regarding the proposed feedstock provisions which appeared for the first time when the Bills were read into Parliament on 13 May. At pages 61-63 of the Report, the proposed changes are outlined, followed by only one generally expressed concern made at the recent Senate hearings. The Committee goes on to note the concerns about the provisions without providing any details and then indicates that it “…does not believe this will be a problem for large companies.” It proceeds to recommend an advisory group be established to advise the administration on any “unforeseen consequences that emerge as the bill is implemented.”
Rather than dwell on whether this is a case of buck-passing of the highest order, we submit that it is a compelling example of the fact that the Committee simply didn’t have the time to absorb and analyse the feedstock issues in the same way that stakeholders were not afforded any time to undertake a similar process. Yet the new provisions stand to have a huge impact on eligible R&D for all claimants going forward. The same can be said for so many of the other concerns that have been raised regarding the Bills.
The content of the Report, spread very thinly over its 110 pages, underlines the rushed nature of the drafting process and the fact that the implications of the Bills in their current form have not been subject to anywhere near the requisite degree of scrutiny required for the making of good law.
Before setting out the recommendations and providing some further preliminary assessment of the Report, it is worth making particular note of the fact that the Government has recommended that the dominant purpose test be removed for companies with a turnover of less than $20 million. This would establish two distinct programs with separate definitions of R&D as well as levels of benefit. This takes the legislation even further away from the Government’s own announced policy, let alone the original position taken by the Cutler Report of a system that supported the same type of R&D within all organisations, large or small. It goes without saying that more compliance complexity and administrative uncertainty will follow.
We urge the Government to reconsider the passage of the Bills in the form recommended by the Committee. Policy on the run suits nobody and stakeholders have simply run out of time to consider the impact of the latest round of recommendations and amendments before the Bills need to be passed by 25 June.
The Government’s Recommendations
The Government Senators have made the following recommendations:
Recommendation 1
The Committee recommends that subsection 355-5(2) of the objects clause be
amended to clarify the reference to ‘new knowledge or information in either a
general or applied form’ by adding ‘new knowledge in an applied form includes
new or improved materials, products, devices, processes or services’.
Recommendation 2
The Committee notes that many of the concerns were raised by organisations
who want to maintain the status quo. Nevertheless, given the concerns raised, but
acknowledging the need to ensure that public support is targeted appropriately,
the Committee recommends that the definition of ‘core R&D activities’ in section
355-25 be amended to remove the word ‘about’ from paragraph 355-25(1)(b) so
that the paragraph reads as:
[talking about experimental activities] that are conducted for the
purpose of generating new knowledge (including about the creation of
new or improved materials, products, devices, processes or services).Recommendation 3
Given the scope of the changes proposed, the Committee is of the view that the
amended provisions, including the effect of the ‘dominant purpose’ test, be
reviewed after two years to ensure that the legislation is operating consistently
with the Government’s intent.Recommendation 4
The Committee recommends that companies with revenues under $20 million be
exempt from the dominant purpose test.
Recommendation 5
The Committee recommends that a broad–based working group including small
business and union representatives be established to advise Innovation Australia
and the Department of Innovation, Industry, Science and Research about any
unforeseen circumstances that emerge as the bill is implemented. This working
group would also inform the two year review of the bill (Recommendation 7).Recommendation 6
The Committee notes the claim of drafting errors. The Committee notes that
minor drafting errors are common when framing new legislation. The
Committee does not believe that these minor errors are of sufficient magnitude to
delay passage of the bill but considers it preferable that they be dealt with before
the bill is enacted.Recommendation 7
The Committee recommends that the Senate pass the bill, with the amendments
proposed in the earlier recommendations, before the end of June 2010. The
operation of the bill should be monitored on an ongoing basis and reviewed after
two years.
The Dissenting Report of the Coalition Senators
The Coalition Senators have made the following recommendations:
Recommendation 1:
The Coalition recommends that the start date for these Bills be amended to 1
July 2011.Recommendation 2:
The Coalition recommends that the passage of the Bills be delayed in order to
rectify the issue of drafting errors.Recommendation 3:
The Coalition recommends that the definitions of core and supporting R&D be
reconsidered to be more closely aligned to the Frascati model of R&D.Recommendation 4:
The Coalition recommends that the dominant purpose test be removed and be
reconsidered.Recommendation 5:
The Coalition recommends that the Object clause be amended to ensure that
both research and development are given equal tax benefits.
Our Preliminary Assessment
The spectre of the 2007 Productivity Commission Report (the PC Report) looms large over the Committee’s Report. In the opening to Chapter 6, the Committee states that:
“The bill will introduce aspects of the recommendations that came out of the Productivity Commission’s 2007 review;” (page 59).
This is a stunning admission given that the PC Report was so directly contradicted by the Cutler Report and it is Cutler that the Government has repeatedly quoted as the basis of its R&D tax policy. Again, remember that the PC Report advocated the closure of the basic concession for all but the smallest companies, leaving most with an incremental option only. Cutler advocated the polar opposite – enhance the basic incentive and close the incremental option and that is exactly what the Government announced in last year’s Budget.
The Committee is in the thrall of the additionality and spillover arguments of the PC Report and repeats much of the debate that had already been resolved in the Cutler Report. From MJA’s perspective, it is clear that the Committee could not follow the arguments we put forward regarding additionality involving the need to focus support on generating additional R&D activities from the R&D projects that companies do undertake rather than designing a subsidy aimed at getting otherwise marginal projects across the line.
The Government’s recommended amendments do very little to allay the concerns expressed by so many stakeholders since the consultation process began towards the middle of last year.
The changes to the Object Clause and the definition of core R&D activities appear designed to more explicitly acknowledge the eligibility of applied R&D but do nothing to address the restrictive impacts of the dominant purpose test and the new feedstock provisions. The express inclusion of new or improved products, processes, devices, materials and services in the definition of new knowledge actually doesn’t make grammatical sense. How is it that new knowledge includes the creation of new and improved products and processes as the Committee suggests?Traditionally, new knowledge has been seen as the output of basic and applied research whilst the creation of products and processes results from experimental development ie. the application of existing knowledge. The recommendation to equate the two is very confusing.
In discussing the extent of the restrictions associated with the definitional changes, the Committee indicates that these changes are really only seeking to limit ‘business as usual’ activities and ‘whole of project’ concerns. This is giving voice to some of Treasury’s recent defences of the changes but will offer no comfort to those faced with assessments of their production-based R&D claims in the new regime.
The discussion of the concerns regarding the dominant purpose test is perfunctory and, tellingly, avoids grappling with the conclusion expressed at the Senate hearings by the current Chair of Innovation Australia’s Tax Concession Committee that determining dominant purpose under the new legislation will be entirely a matter of judgement as opposed to a question of fact. At no time is any consideration given to the power of the current ‘directly related’ definition to regulate excessive claims but the impact of the change to dominant purpose is tacitly acknowledged by the Committee’s recommendation regarding the test and SMEs.
The removal of the dominant purpose test for SMEs is, in one sense, welcome but it does establish two distinct programs by legislating two different definitions of R&D. This feels like an innovation that we could all do without as it adds yet more complexity and uncertainty, particularly for taxpayers whose turnover is in the vicinity of $20 million. What such a change does do, is reinforce the notion that the dominant purpose test is a restrictive one that will see larger companies unable to receive support for an uncertain range of R&D activities that would have otherwise qualified had the organisation simply been smaller.
Many of the major concerns raised in the recent round of consultations – beyond feedstock, these included the splitting of core and supporting R&D activities; the quality of the Explanatory Memorandum, particularly its example projects used to demonstrate the operation of the new definition of R&D; the ‘expenditure not at risk’ provisions; the greatly enhanced administrative powers; the increased complexity of the compliance regime – did not result in any specific recommendations by the Government. Like all the other parties, the fact that the timeframe for considering all the issues has been so condensed has meant that it is apparent that the Committee did not have the opportunity to actively turn its mind to many of the concerns raised.
We are very concerned that the Government accepts the Treasury’s modelling without having seen it. As we pointed out in our last Update, it appeared from the Senate hearings that Treasury’s admitted reduction of claims by 15-20% did not take into account the closure of the 175% Premium Concession which we had demonstrated previously would save 30-35% of the current cost of the program. In the absence of any published modelling, the Committee steps into the breach and offers up its own “back-of-the-envelope” calculations in support of Treasury’s estimate (page 75).
In some breathtaking assumptions, the Committee suggests that the new regime will increase current program costs by one third to one half of current levels by the combination of higher rates and new program entrants and the savings associated with the combination of the changed definition and the closure of the Premium Concession will roughly offset these costs. We wish to strenuously challenge these assumptions, particularly as they are partially based on a submission we made regarding the impact on program participation back in 1996 where the number of registrants was no more than half the current number and when participation rates fell from around 4,000 to below 3,000. It is unreasonable to assume that program uptake by new entrants will be of a similar dimension given the user base now involves roughly 8,000 Australian companies.
Of course, there is no opportunity to do this prior to the vote and the Committee appears happy with its published back-of the-envelope numbers standing in the place of any need to publish Treasury’s elusive modelling. This is not acceptable.
Finally, we remain absolutely dumbfounded by the following statement on Page 1 of the report:
”It is neither sustainable nor in the national interest that 60 per cent of the total government support is consumed by 100 firms out of Australia’s two million enterprises”.
You will be growing tired of us pointing out that this figure is consistent with ABS statistics on the profile of Australia’s corporate innovation activity and is in line with international practice. We have continued to emphasise throughout the consultative process that large corporates are prepared to negotiate some limits on their R&D tax benefits provided they continue to be acknowledged as performing legitimate R&D on the same basis as their smaller cousins.
However, once more, we feel compelled to point out in the strongest manner possible that the R&D tax incentive is not a finite pie, 60 per cent of which is consumed by 100 firms. Rather, it is a self-assessment program in which 60 per cent of claims are currently made by the top 100 firms. Smaller firms are not crowded out by the claims of the top 100 firms. All firms claim their entitlements against the prevailing rules. No firm’s access to the available benefit is impacted in any way by the claiming behaviour of any other company. In 25 years of consulting on the R&D Tax Concession, MJA has never met a company that does not claim or has a reduced claim because of a claim being made by another company of any size.
If this is the justification for the gutting of the incentive as the Coalition describes it, then it should be shown for the fallacy that it is. The Cutler Report called for reform to R&D taxation support for all Australia’s corporate citizens in the National Innovation System. It never intended for this reform to be the ushering in of an era where large corporates are seen as doing a lesser class of R&D when serving Australia.
What Next?
The Bills need to get through the Senate by 25 June. The Coalition appears ready to vote against the legislation so the focus now shifts to the standpoints of the Greens and the Independents.
Keep an eye out for MJA Updates in the next few days regarding the impending vote as well as any additional issues that emerge from a closer consideration of the report.
As always, should you wish to discuss this matter any further, please do not hesitate to contact Kris Gale directly on (02) 9810 7211 or using our contact form to discuss the matters raised in this MJA Update in greater detail.
Guide to R&D Tax Concession Updated – R&D Tax Concession Rulings Withdrawn
AusIndustry and the ATO have been jointly publishing a Guide to the R&D Tax Concession for some years now.
On 6 August 2008 the ATO released an update to Part C of the Guide to the R&D Tax Concession covering Expenditure on Research and Development. This completes the June 2008 update (Version 4.1) process as Part A (Introduction) and Part B (Research and Development Activities) were released by AusIndustry recently.
Changes incorporated in the updated guide include:
- Changes to the legislation on the Tax Offset including extending right of appeal to offsets, extend the time for claiming an offset, apply the $20,000 minimum,
- Improve the allocation of the 175% incremental concession between companies within the group
- Extend the 175% incremental concession to Australian subsidiaries of multinational enterprises (MNE) where the R&D activities are on behalf of the MNE.
- Other general changes to bring the Guide up to date with current legislation and ATO views.
In the process of releasing the update, a number of older rulings were withdrawn from this date. These are:
- IT 2442: This is an early general ruling on R&D expenditure
- IT 2451: This ruling discusses investor funding of R&D and “on own behalf” issues
- IT 2552: This ruling gives a detailed guide to costing R&D expenditure.
These 3 rulings are pre-1992 rulings. As such they only gave guidance and were not legally binding on the ATO. In the Notice of Withdrawal for each ruling the ATO states that “material in these rulings which is current is now included in Part C of the Guide to the R&D Tax Concession”. “The withdrawal of [these rulings] does not mean that the views expressed in that Ruling have changed.”
However, their replacement with the Guide rather than new public binding rulings fails to maintain or improve certainty for taxpayers. Given that the ATO has recently sought public comment on a potential ruling on “Guaranteed returns to investors” (s73CA) we can expect new rulings in due course. Notably, IT 2635 on risk provisions and syndicated R&D as the last pre-1992 ruling was not withdrawn.
We are currently completing a detailed review of the updated Guide.
Contact us if you would like more information.
- The R&D Tax Incentive – Like the Footy Finalists, Take It One Week at A Time
- R&D Tax Credit finally passed through the Senate
- Alas, poor R&D project, we knew you well
- Are We There Yet? Are We There Yet? Are We There Yet?
- MJA on Switzer
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