R&D regulation on the rise

R&D regulation on the rise

Joanne Gagliardi and Alex Demetriou alert taxpayers to a recent ATO focus on refundable R&D tax offset claims.

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KPMG has recently become aware of regulator activity from the Australian Taxation Office (ATO) in relation to the Research and Development (R&D) Tax Incentive, with the ATO and AusIndustry working together on joint management of the incentive. The ATO has communicated their support of businesses undertaking genuine R&D activities. However, the ATO has expressed concerns regarding the merit of some claims, with a focus on the refundable R&D tax offset.

A recent review of the tax returns of a number of companies, undertaken by the ATO, identified several R&D claims that have been improperly made. Examples of the problems identified by the ATO include the following:

  • An inability to substantiate R&D expenses and poor record keeping by R&D claimants. Your business records must be sufficient to verify the amount of the expenditure incurred on R&D activities, the nature of the R&D activities and the relationship of the expenditure to the activities.
  • Issues relating to R&D expenditure between related parties, including the amount being incurred but not paid, or not paid in the relevant year, and goods or services associated with R&D activities being provided by related parties, at inflated prices. Specific provisions exist around the circumstances in which expenditure incurred by an associate, as defined by legislation, can be claimed.
  • Ordinary business expenses being claimed as R&D expenses.

Concerns around the provision of R&D consultancy services by particular advisors have also been raised. These concerns with consultant behaviour could potentially lead to an increased risk profile depending on the reputation and previous experience of the adviser you have engaged.

If you have concerns regarding any of the risk areas identified above, or general questions relating to an R&D Tax claim, please contact a member of KPMG’s specialist R&D Tax Incentives team.

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