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:

1. Registration Profile Review – review of registration documentation involving no contact with the registrant company.
2. Registration Desk Assessment – the company receives a letter requesting specific information on a project’s R&D activities and their eligibility.
3. Compliance Activity Review – will involve a site visit to the claimant company to discuss potential eligibility issues.
4. 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.

The National Innovation Review (the Review) has moved into its next phase following the close of formal submissions at the end of April (where some 670 submissions were received).

The Tax and R&D Tax Concession Working Group held three consultation sessions in May to canvass views regarding its brief to consider the overall impact of the taxation system on innovation and the particular role played by the R&D Tax Concession. These meetings were held in Sydney, Brisbane and Melbourne and were made up almost exclusively of advisory firms, though there was some industry association presence. MJA was represented at the Brisbane and Sydney meetings.

Presumably, this was seen as a good way of taking the pulse of corporates on this issue as the invited firms help prepare literally hundreds of R&D tax claims. Whilst this is certainly true, it was disappointing to learn that there are no plans to consult face-to-face with companies prior to the issue of the Cutler Green Paper in July. Instead, a survey is apparently being sent out to selected companies to help provide input to this phase of the Review.

At this stage, we are not directly aware of any companies who have received the survey. We have anecdotally heard that some have been circulated. Whilst not ideal, we strongly urge you to complete the survey if you receive one. It is critical that the specific views of corporates are taken into account. By all means, involve your adviser in its completion but it would be a shame to just hand it to the adviser to fill out on your behalf. If you are an MJA client, please let us know if you receive a survey. We are fully available to discuss your response with you.

What Next For The R&D Tax Concession?

The Working Group meetings covered a vast range of matters regarding the review of the R&D Tax Concession. They involved three members of the Working Group – Nick Gruen, Laurie Hammond and Peter Burn. Terry Cutler (Group Leader and Head of the Expert Panel) and Graeme Davis (Treasury) did not attend. Representatives of the Review Secretariat and the Department of Innovation, Industry, Science and Research were also present.

We will summarise the issues here without detailing the views canvassed. Please don’t hesitate to contact Kris Gale (details below) if you would like to discuss any aspect of the meeting.

In short, the matters raised included the following:

According to the Working Group, additionality is the main feature required in any support mechanism

The Productivity Commission (PC) Report is considered highly relevant by the Working Group .  This is significant as the PC Report recommended that the basic concession be scrapped for all but the smallest companies (turnover less than $5 million) and that a new incremental concession be introduced based on R&D intensity.

The merits of an R&D tax credit as opposed to the current deduction regime

Can services innovation be supported through the R&D Tax Concession?

Should the program be opened up to other entities such as partnerships and individuals?

Are ‘whole of mine’ claims an intended/desirable feature of the R&D Tax Concession?

Should private/public sector collaboration be targeted through the incentive?

How important is location (ie. where the R&D is conducted) to the program?

Is there scope to change the IP requirements such as the removal of the “on own behalf” rules?

In addition, a number of finer grained issues were raised including the R&D tax offset threshholds, the operation of the feedstock offset provisions, the unlimited amendment powers of the Commisioner of Taxation, software R&D, the current grouping rules and the design of the overseas R&D provisions.

MJA looks forward to a continued and close involvement in this critcal phase of the Review.

Kris Gale
Managing Director – Michael Johnson & Associates
m: 0411 171 596 | t: 02 9810 7211