Publishing RDTI Claims: Tales Of Transparency, Compliance & Bad Acting

October 10, 2024 Kris Gale

Last week, the ATO published its 2021/22 Report about the claiming R&D Tax Incentive (RDTI) entities and an accompanying Transparency Report. These reports were originally announced in the 2018/19 Budget. It needs to be noted that the reports excluded entities with substituted accounting periods that commenced before 1 July 2021.

At the heart of the reports was a document in the form of an Excel spreadsheet that listed the RDTI claimable expenditures (including amendments and relevant feedstock adjustments) of 11,545 entities which amounted to R&D claims of expenditure totalling of $11.2 billion. The average claim was $972,145 with more than 90% of the claims worth less than $2 million.

The reports provide some basic analytics that we won’t repeat here, but it is worth noting that there is no split provided between those entities accessing the Refundable and Non-Refundable R&D Tax Offset. In fact, the figures are not really set in any meaningful context.

So Why Do This? 

Two reasons have been put forward by the ATO for the publication of the data:

• Increase community confidence that companies are paying the right amount of tax
• Encourage voluntary compliance

It’s difficult to see how the publication of thousands of claim amounts on their own, devoid of so much detail and context, achieves these objectives.

The claimable expenditure amount of a company enables one to hazard a guess as to the potential associated tax saving but one would have to do further research to establish the amount of benefit and the tax position of each taxpayer. It is totally unclear as to how this information speaks to whether the company is paying the right amount of tax. It does not advance that objective one iota.

The second objective seems predicated on a dismal assumption that Australian taxpayers are more likely to claim correctly if the amount they claim is published, inferring that the legal requirements are not enough. Given there is no way that the publication of the numbers can speak to the veracity of the claims, it seems absurd to suggest that this report is encouraging compliance, voluntary or otherwise. The ATO’s argument seems to be that, if we name you, you’ll be shamed into claiming honestly. It’s hard not to see this as a collective affront to the Australian innovation community.

In addition, there are so many questions raised by the publication of the largely unadorned figures. For example,

• Who didn’t claim and why?
• Are the figures within the range of what we would expect for companies in their fields and sizes?
• Why was the annual claim cap lifted from $100 million to $150 million in 2021 if only three companies identified so far, Atlassian, CSL and Cochlear, are currently able to take advantage of the change?

It goes without saying that an initiative described as being all about transparency adds layers of questions, if not confusion, and apparently does nothing to advance its stated objectives. Transparent? Not really.

Is It A Retrograde Move?

We noted, with keen interest, the remarks of Innes Willox, CEO of the Australian Industry Group (AIG) following the release of the reports:

“It is telling that this data reveals that of the $20.6 billion of business R&D conducted in 2021-22, only 54% was subsequently claimed to the ATO under the R&D Tax Incentive. This low utilisation rate points to design inefficiencies that are preventing our R&D-active businesses from properly accessing the R&D Tax Incentive.”

“While we fully support transparency in the allocation and utilisation of government funding, the effectiveness of the new reporting requirements in enhancing program compliance remains questionable. If the ATO is aware of the entities engaging in non-compliant activities, it should take direct action against these bad actors rather than sharing the details of participants in the program.”

Mr Willox further added: “Ironically, the new reporting requirements may inadvertently benefit the bad actors the ATO aims to eliminate. By providing a detailed ‘shopping list’, the ATO has potentially armed these entities with the information needed to navigate and exploit the system further.”

We couldn’t agree more. The published list enables service providers, with their widely divergent range of attitudes to delivering compliant claims, to contact companies with a pitch that will invariably begin with an opening line such as:

“I see you claimed $X. That’s clearly too small. Work with me and I will deliver a bigger number.”

It’s hard to imagine a call spruiking the fact that, by working with the caller as your new provider, you will see a smaller claim.

The waters of the RDTI will become even more muddied in the wake of this predictable behaviour.

No Oscars For Bad Actors

The reports have given us a real world example of what was intended. We would argue that the stated objectives are not achieved and the concerns for potential damage as articulated by the AIG are real.

This initiative was announced without prior consultation in the 2018/19 Budget. Its retention by the incoming Government was lost in all the noise associated with the political goings on associated with a change in power. It runs the risk of providing unearned Oscars for the bad actors as described by the AIG.

We believe this initiative should be reversed. We call for the matter to be put up for immediate public consultation in the wake of the release of these reports and would recommend that it be made a prominent agenda item at the next RDTI Roundtable, a forum surely built for such a purpose.

Upcoming MJA Webinar

Finally, MJA is co-hosting a free webinar next Thursday 17 October at 10:30am on the R&D Tax Incentive and profiling your innovation through various business awards. You can register here.