The R&D Tax Incentive, jointly administered by the Australian Tax Office (ATO) and AusIndustry, successfully demonstrates Australian’s Government’s support for technology innovation. In the 2015-16 financial year, more than 14,000 SMEs have accessed the 43.5 per cent refundable tax offset for R&D claims.
For companies with a group turnover of under $20 million, for example, this offset reduces their tax liability by 13.5 cents in the dollar.
There has been a rapid increase in software-based R&D claims due to the increased digitisation of traditional industries such as agriculture, mining and manufacturing. However, according to AusIndustry and the ATO, some claimants have stretched their R&D claims to include normal business activities and expenditure, which are not covered.
AusIndustry has published Tax Alerts covering mining, construction, farming and software and the ATO has issued Tax Alerts on construction (TA2017/2), business activities (TA2017/3), farming (TA2017/4) and software (TA2017/5).
In February, an amendment to the software Alert, TA2017/5A- Addendum, was issued by the ATO and AusIndstry. This allows for software to be included as a claim under certain conditions, such as testing of a hypothesis.
Business owners should continue to access cash savings by accessing the R&D claims tax incentive, however they must be prepared to justify these claims upon review.
Ensure they adequately identify their R&D activities claimed;
Avoid ineligible expenditure: check claims fulfil the criteria for the R&D Incentive;
Always attach appropriate documentation to support claims;
Seek advice from trained professionals. Companies can improve their R&D claim process by using claim management tools, which track activities in real time across the team responsible for compiling a claim.
By seeking support from engineering, software and science-trained tax professionals, SMEs can make sure the ATO and AusIndustry have a full appreciation of their activities.
Paul van Bergen, Partner Tax – specialising in the mid-market, KPMG