R&D Tax: Preparing for 30 June

R&D Tax: Preparing for 30 June

The May 2023 federal budget was the first budget presented by the current Labor Government. Fortunately, there were no significant changes proposed to the R&D Tax Incentive. This is good news since it was not expected that any changes would be made, as the previous Coalition government had recently enacted changes for FY22.

While the budget did not directly impact the R&D Tax Incentive, there were some measures announced that could indirectly affect R&D claimants. These measures include funding for clean energy programs like the Hydrogen Headstart program, support for the development of critical technologies like quantum tech and artificial intelligence and the introduction of an Industry Growth Program to assist small businesses with advice and grant funding. Additionally, there is continued funding for programs such as the Single Business Service and cyber warden training. Small businesses with turnover up to $10 million will also have the opportunity to write off the value of new equipment worth up to $20,000. It’s worth noting that compliance programs announced in the previous October 2022 budget by the ATO and the Tax Practitioner Board (TPB) will also be relevant.

Important Considerations for Associate Entity Payments in R&D Tax

The R&D Tax Incentive includes a provision to ensure integrity in transactions involving related parties. If a company incurs R&D expenditure with an associate, it must make the payment in the same year to claim a notional deduction for that amount. This requirement is subject to meeting all other eligibility criteria for the R&D Tax Incentive.

The ATO provides examples and further details about which entities are considered associates of the R&D entity on their website or you can speak with your Simmons Livingstone Tax Advisor for further information.

It’s important to note that making a payment to an associate, can include acting on their behalf or as directed by them.

Required Documentation for R&D Claims

The end of the financial year is a crucial time for companies engaged in R&D activities to compile the necessary records that may be requested by AusIndustry or the ATO. These records are essential to substantiate that the activities took place in accordance with the legislation.

Compliance focus areas are likely to include the following:

  1. Keeping records and providing an explanation of the process followed by companies before conducting R&D activities to establish the novelty and uncertainty of the knowledge sought.
  2. Ensuring that registered activities are relevant to core and supporting R&D activities and do not fall outside the scope of the R&D Tax Incentive, such as standard engineering or ordinary production.
  3. Maintaining records to support R&D expenditure, including:
    1. Accurately documenting R&D hours for employees.
    2. Providing detailed records that establish a direct connection between R&D expenditure and the registered activities.
    3. Ensuring that any apportionment of expenditure reflects the extent to which it was incurred on R&D activities.

Advanced and Overseas R&D Findings

An Advanced Finding is a decision from Innovation Australia that determines the eligibility of a company’s activities under the R&D Tax Incentive. It functions similarly to a private ruling and aims to provide certainty for companies.

Likewise, an Overseas Finding is a binding decision that pertains to overseas activities and expenditure. There are specific rules for including overseas expenditure in an Australian R&D Tax Claim. To claim overseas expenditure, a company must obtain approval through an Overseas Finding Application before the end of the year.

In general, R&D activities conducted overseas can only be eligible for the R&D Tax Incentive if:

  1. The overseas activity has a significant scientific link to core R&D activities conducted in Australia.
  2. The expenditure on overseas activities is less than the expenditure on Australian core and supporting activities.
  3. The overseas activity cannot be conducted within Australia due to reasons outlined in the R&D Tax Legislation, such as contravention of Australian laws or restricted access to expertise and natural features.

For companies with a June year-end intending to claim overseas costs in the current year’s R&D claim, it is necessary to submit the activities related to those costs through an Advanced Finding by 30 June.

For more information speak with your Simmons Livingstone advisor on 1800 618 800 or via email at admin@simmonslivingstone.com.au.



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