A (Reasonably) Festive MJA Update

December 24, 2013 Kris Gale

Before we all head off to enjoy the holiday season with our families, the least we thought we could do was leave you with some stocking stuffers around the state-of-play with the R&D Tax Incentive. No need to thank us. Really.

$20 Billion Exclusion Bill Review
As reported last time, the Tax Laws Amendment (Research & Development) Bill 2013 has been referred to the Senate Economics Legislation Committee for inquiry and report by 17 March 2014. Written submissions are due by 22 January and public hearings will take place in February. The Bill amends the Income Tax Assessment Act 1997 to deny access to the R&D Tax Incentive (the Incentive) for companies with aggregated assessable income of $20 billion or more for an income year.

The Coalition is adopting this measure as a straight budget cut in comparison to the former Labor Government’s announcement which reallocated much of the funding to innovation-related initiatives. Restricting participation is a crude way of achieving cost control in the Incentive and we believe better levers to consider would be rates of benefit and claim caps. With the Senate Committee not due to report until March 2014, the 1 July 2013 commencement date will see the measure as being highly retrospective in terms of the 2013/14 fiscal year. As such, it would be better to not proceed with the cut and put this matter into the Government’s announced comprehensive review of the Incentive so that the issues around exclusion can be sensibly examined and the overall long-term impacts on innovation support and the return of the Government’s investment be fully considered.

Quarterly Refundable Credits off the Table
The Assistant Treasurer, Arthur Sinodinos, has confirmed that the former Government’s proposed January 2014 introduction of a quarterly payment option for taxpayers entitled to cash refunds under the 45% Refundable R&D Tax Offset will not be taking place.

Recent AAT Decisions
Reasons for a recent AAT decision were published in late November 2013. The Desalination Technology Pty Ltd and Commissioner of Taxation [2013] AATA 846 (DST) case provides guidance on whether expenditure was incurred in the relevant income year of an R&D Tax Concession claim. No mention was made in the reasons in relation to the ownership of the intellectual property of the R&D activities conducted by the taxpayer nor was the issue of exploitation of the results of the R&D canvassed. Under the Incentive, companies are reminded that they will need to address the issue of whether expenditure is in fact incurred for that expenditure to be eligible in an income year and, in addition, companies should address the issue of whether the R&D activities are being conducted for the eligible R&D entity. Furthermore, the facts of the case involved a relationship between companies that would be associated entities. Under the Incentive program, companies need to address the issue of payments to associates before making any claims.

Another recent AAT decision was handed down this quarter highlighting the importance of keeping records to substantiate R&D claims under the Concession; the DBTL and Innovation Australia [2013] AATA 573 (DBTL) case. The DBTL case is one of a long list of recent cases that should serve as a reminder to companies to ensure that good technical and financial records are maintained to support all of the arguments in the R&D claims made.

2013/14 AusIndustry Guidance & Education Agenda
AusIndustry has released its 2013/14 Guidance & Education Agenda.

Of greatest interest is the upcoming release of the “R&D Tax Incentive: A Short Guide to Interpretation” which will illuminate AusIndustry’s views on the definitions of key concepts associated with core and supporting R&D activities including dominant purpose.

Other features are the introduction of both a Large Business Innovation Review Framework and an R&D Tax Incentive Curriculum, along with an updated Website and improved eBulletin.

Which Leaves Us With…
…the view that we are likely to enjoy some clear air over the next two or three years of the program as the proposed review folds into the broader Taxation White Paper process. Removing the program from the continuous winds of change it has experienced in the past six years would be a warmly received outcome so that companies can be freed up to get on with the business of factoring in the Incentive to their innovation and R&D programs with a higher degree of certainty and confidence. That must be a good thing.

And so to one and all, we wish you a joyous Christmas and a 2014 that brings you meaningful success from all here at MJA.