R&D Tax Facts - June 2023
Countdown to EOFY – Actions to take before 30 June
As we approach the end of the financial year, below are some Australian R&D Tax considerations, updates and deadlines to keep in mind as you wrap up 2023.
The End of Temporary Full Expensing
Temporary Full Expensing (TFE) of new assets and the favourable interaction with the R&D tax offset will finish up after 30 June 2023.
TFE was introduced during the COVID-19 pandemic to provide businesses the ability to deduct the full cost of eligible assets installed ready for use or first used before 30 June 2023. Where these assets were used for R&D activities for a proportion of their first year, businesses can access an R&D tax offset on the R&D proportion of the depreciation.
If you have R&D asset purchases that you are going to make in the next 6 to 12 months, it is worth considering whether you can bring those purchases forward to access this benefit. In some cases, this can provide a meaningful tax or cash flow advantage.
Overseas Finding Deadline
While the R&DTI primarily supports Australian R&D, in exceptional circumstances, costs incurred on overseas activities can be eligible. In such instances, a business needs to apply for and receive an Overseas Finding from AusIndustry with respect to the specific activities.
You must apply for an Overseas Finding before the end of the financial year in which the activities took place. Therefore, if your financial year ends in June, you need to submit an Overseas Finding for activities that began in FY2023 by no later than 30 June 2023.
R&D Payments to Associates
Amounts incurred to associates must be paid prior to 30 June 2023 to be eligible for an R&D tax offset in an FY2023 R&D tax claim.
For eligible R&D expenditure incurred to associates in FY2023, it is important to ensure that amounts have been invoiced by the associate and payment has been made through a cash transaction or via constructive payment, extinguishing the liability before 30 June 2023.
If amounts are not paid prior to the end of the financial year, there is still an opportunity to carry forward and claim unpaid amounts in the year in which they are paid. This is contingent on the relevant activities being registered with AusIndustry and the claimant now electing to claim a normal deduction in the year in which the amount is incurred.
Federal Budget – no news is good news for R&D tax
No major changes were proposed to the R&D tax incentive in the 2023 Federal Budget and all signs point to stability in the program for now.
Announcements related to innovation and industry funding included:
The $392.4 million Industry Growth Program will replace the Entrepreneurs Programme and provide advice and grants ($50k to $5m) to eligible businesses. Read more here.
The patent box initiative announced by the Coalition Government will not proceed
Further funding has been cut from the already anemic Export Market Development Program
The Government will make a $116 million investment over 5 years to support the development of emerging technologies, starting with AI and Quantum computing.
$15 million through the Powering Australia Industry Growth Centre to support local manufacturing of renewable energy technologies.
Care and consideration when preparing R&D tax incentive claims
In another recent AAT decision, a tax agent's registration was at stake due to denied R&D Tax Incentive claims.
Audits by the Commissioner of Taxation (CoT) had resulted in significant portions of the tax agent’s clients’ R&D tax incentive claims being denied. This was because of a lack of nexus with R&D activities and the absence of contemporaneous records. Tax shortfalls of $4.9 million and administrative penalties of approximately $2.6 million based on recklessness as to the application of the tax laws had eventuated. This triggered a Tax Practitioners Board (TPB) investigation resulting in the decision to terminate the tax agent registrations.
Ultimately, the AAT’s decision was to stay the TPB’s reviewable decisions. The case is an important reminder that proper care and consideration should be taken when assessing and completing R&D incentive applications. Tax agents lacking R&D tax experience should consider obtaining specialist R&D tax advice before lodging R&D Applications.
Please reach out to someone from the Intellect Labs team if you need advice on R&D Tax compliance.