ATO Investigated R&D Tax Incentive Refunds Clawback

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Reports in late 2018 emerged that Australian software and technology companies had received demands from the ATO to pay back millions of dollars of R&D tax incentive refunds collected over multiple years.

This sparked outrage from Australia’s SME community, resulting in the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) springing to action to investigate these clawbacks.

The most prominent company at the centre of it all was Airtasker, who was forced to repay millions of dollars of R&D refunds to the ATO.

What’s more interesting in Airtasker’s case is that according to its CEO Tim Fung, AusIndustry (the regulatory body that determines the eligibility of the R&D activities) objected to Airtasker’s access to the R&D Tax Incentive, despite the ATO’s original review of Airtasker giving it the all-clear.

The ASBFEO is conducting a formal investigation in relation to these clawbacks that have been assessed by the ATO on the SME community.

The most concerning aspect of this is the fact that these ATO audits are going back several years, well and truly after the R&D Projects have been completed and the R&D refunds having already been used by the businesses.

As a result, the ASBFEO is reviewing the legislation as well as its enforcement by both AusIndustry and the ATO. The ASBFEO is to release a draft report of their findings in due course.

This investigation comes at a beneficial time for the SME community as the recent Moreton Resources case was heard in the Federal Court.

The yardstick case.

The Moreton Resources case, which can now be used as a measuring stick by the R&D Tax Incentive community, used a common-sense approach to the interpretation of the legislation. This proves to be advantageous for the SME community in defending its R&D claims.

This has resulted in the ATO Commissioner Chris Jordan admitting that there is a structural issue with the R&D Tax Incentive. The issue, which Chris Jordan is alluding to, is the fact that the R&D Tax Incentive is reviewed by two regulatory bodies, AusIndustry and the ATO.

The ATO Commissioner argued that the ATO is usually put in a difficult position, as AusIndustry would firstly check the R&D activities conducted, and then advise the ATO to review not only the R&D expenses claimed but also its link to the R&D activities that have been lodged with AusIndustry.

This is definitely an emotive issue for the innovation community. Australia’s innovation space is largely comprised of incredible entrepreneurs. Entrepreneurs who are passionate about their innovation and have invested significant personal sums to turn their dream into a reality.

With all of this in mind, it is important to remember that when lodging an R&D claim that you have the documentation on hand that can be used to substantiate:

1)     The R&D activities;

2)     The R&D expenses; and

3)     The link between the R&D expenses incurred and the R&D activities conducted.

If you are currently going through an ATO audit, or if you would like to discuss how you can prepare a robust R&D claim in case you have to defend it during an audit, then please reach out to the team at BridgePoint Group Innovation Advisory team on 1300 656 141.

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