R&D Tax Incentive: More Flexibility Provided In Respect of Finding Applications But The Most Pressing Question Remains Unanswered

April 23, 2020 Kris Gale

In a pleasing development this week, the Federal Government has announced a three month extension for the lodgement of Advance and Overseas Finding applications through to 30 September for taxpayers with a 30 June 2020 financial year end in an acknowledgement of the effects of COVID-19 on Australian businesses. AusIndustry will accept a ‘provisional’ Advance or Overseas Finding application for the 1 July 2019 – 30 June 2020 income year, due on 30 June 2020. This option is also available to affected companies with substituted accounting periods.
However, there remains no news regarding the confirmation that the proposed changes contained in the R&D tax reform Bill will not apply to the 2019/20 income year.

New Finding Arrangements

Under the new arrangements, a provisional Advance or Overseas Finding application requires a taxpayer to submit an Advance or Overseas Finding application form by 30 June 2020 with the minimal detail outlined below, on the basis that the further information required to assess the application will be provided to AusIndustry by 30 September 2020.

The minimum details required in a provisional Advance or Overseas Finding application are:
· Company contact details
· Descriptive name/title of claimed R&D activities.

It is important to note that a provisional Advance or Overseas Finding alone is not sufficient to claim overseas R&D expenditure in the company tax return. Following receipt of the completed Advance or Overseas Finding application details by 30 September 2020, Innovation and Science Australia (ISA) must still issue the applicant company with a positive Advance or Overseas Finding in order for the taxpayer to be entitled to claim overseas R&D expenditure in its company tax return for the 1 July 2019 – 30 June 2020 income year.

This appears to mean that companies anxious to secure their domestic R&D tax benefits will potentially have to claim their overseas R&D expenditure by way of a subsequent amendment to their tax returns, given that a Finding application may not be approved for several months. MJA is seeking clarification regarding this matter.

The Big Unanswered Question

The Government is to be congratulated for announcing this additionally flexibility regarding Finding applications.
However, it further underlines the pressing need to confirm that the outstanding reform Bill, which reduces the level of available R&D support across the board, does not apply to the 2019/20 income year. As discussed in previous MJA Updates, the Bill cannot pass until after the resumption of Parliament in August which would see the measures taking retrospective effect, several months after when many applicants will have already lodged their 2019/20 R&D tax returns.

It is well known that the Bill is lacking in support in its entirety, not just in its retrospectivity. Given the way that the current pandemic has underlined the critical role of science and innovation in our modern world, the Federal Government should take this opportunity to confirm that the Bill will not be proceeded with. This fillip will see companies getting on with their innovation programs with renewed enthusiasm and optimism. And there can be no doubt that these are qualities whose stocks need replenishing right now.

Should you wish to discuss this issue further, please don’t hesitate to contact Kris Gale on 0411 171 596 or kris.gale@mjassociates.com.au.