'Tis the Season for Scrutiny – Two new R&D Taxpayer Alerts from the ATO
The ATO has a special gift for R&D tax claimants this season – two new Taxpayer Alerts as a reminder to ensure compliance with some of the more complex areas of the program.
The target areas for the alerts are:
Taxpayer Alert TA 2023/4 Research and development activities delivered by associated entities; and
Taxpayer Alert TA 2023/5 Research and development activities conducted overseas for foreign related entities.
Unwrapping the ATO’s concerns
In TA 2023/4, the ATO has identified arrangements where an entity incorrectly claims the R&D tax offset for expenditure incurred under an agreement with an associated entity conducting those activities.
This alert emphasises the importance of accurately attributing R&D activities to the entity that genuinely incurs the expenditure. Businesses should be wary of arrangements that might inadvertently misrepresent the true nature of the R&D activities and the entity benefiting from the tax offset.
In TA 2023/5, the ATO expresses concerns about arrangements where Australian entities claim the R&D tax offset for expenditure incurred on activities conducted overseas.
The focus is on situations where an R&D entity claims that activities were conducted for its own benefit, while in reality, these activities were performed for a foreign entity connected with or affiliated to the R&D entity. It's a reminder that the R&D tax incentive is intended for activities that genuinely benefit the claiming entity, and misrepresentation can lead to scrutiny.
What Does This Mean for Your Business?
If you think that your current arrangements or past R&D claims might fall within the remit of one of these alerts you should:
Review your agreements with associated entities or foreign affiliates to ensure accurate representation of R&D activities.
Confirm that the entity claiming the R&D tax offset is the entity that genuinely benefits from the R&D activities, in line with the tax law and ATO guidance.
If you have any doubts or concerns about your R&D tax claims, consider seeking advice from tax professionals to ensure compliance.
If you’re concerned that your arrangements do not align with the legislation, consider:
Asking the ATO’s view through a private ruling. This involves making a submission to the ATO explaining the arrangement and asking for a ruling as to whether the ATO views this as complying with the tax law.
Making a voluntary disclosure to reduce penalties that may apply. This may involve an amendment of a tax return to remove the relevant R&D tax benefit.
While these alerts serve as a caution, they also present an opportunity for businesses to review and strengthen their R&D tax compliance practices.
If you have questions or concerns about the alerts or wish to take steps to improve compliance with the R&D tax program, please don't hesitate to reach out for professional guidance.