It’s that time of the year….

December 21, 2023 Sarah Lander

In what seems to be a bit of a tradition, one of the regulators responsible for the administration of the R&D Tax Incentive program released some guidance in the lead up to Christmas.
 
The ATO recently released two Taxpayer Alerts on R&D that focus on where the R&D is conducted by an:

• associate of the R&D claimant (TA 2023/4 “Research and development activities delivered by associated entities”), and
• overseas service provider for an R&D clinical trial business (TA 2023/5 “Research and development activities conducted overseas for foreign related entities”)

As mentioned in our MJA Update of earlier this month, an RDTI Random Audit Program commenced on 1 November to ensure areas of the R&D program integrity rules were being properly applied. These alerts elaborate on two of the five issues that the ATO have identified as areas of concern.

The two alerts state that the ATO is considering aspects of these arrangements to determine if the R&D expenditure is not eligible because it is (or to a significant extent, is) conducted for another entity (e.g. a related operating company or a foreign related party). Additionally, the alerts explore whether the R&D expenditure is not at risk.

However, this is no reason to panic. This is not a change in the law or a Ruling. Instead, it highlights the need to ensure that corporate structures, R&D activities and agreements between associates meet the objectives of the R&D tax incentive legislation without providing an undue benefit to the taxpayer. It does not mean that R&D cannot be conducted for your IP entity or that foreign expenditure for Australian clinical trials is no longer eligible.

If your R&D is largely conducted for your IP subsidiary by your operating company or your R&D entity was formed to conduct clinical trials and it incurs overseas expenditure and you are concerned, please contact your MJA R&D consultant to discuss.

And so as 2023 draws to a close, we wanted to take this final opportunity to hope this year has been a successful one for you. And, from all at MJA, we wish you a happy and safe Christmas break and a prosperous new year.