R&D Tax Incentive pushed to breaking point

While the Morrison Government, spearheaded by Treasurer Josh Frydenberg, push ahead with changes that could cripple the R&D Tax Incentive, Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell AO has called for an end to retrospective audits of R&D Tax Incentive claims where the associated refunds were paid (and spent) years ago.

This follows the ASBFEO’s damning review of how the R&D Tax Incentive is administered, which reports as much as $200 million in R&D refunds had been clawed back from SMEs during the 2018 financial year.

This review of the R&D Tax Incentive stemmed from an investigation of a number of complaints by small businesses which believed they had been unfairly treated by the Australian Tax Office (ATO) and AusIndustry in relation to their R&D Tax Incentive claims.

Ms Carnell’s report found that “Often these affected businesses were required by the ATO to repay the R&DTI in full, with a severe penalty applied. This has had a devastating impact on the businesses involved, with some saying they face financial ruin. Others have discontinued or scaled down their R&D efforts in Australia and reduced their R&D staff.”

Common Sense

Ms Carnell’s common-sense recommendations include audits to take place as close to the first year of a project’s registration. The SME community would welcome this.

Ms Carnell calls for the program to be based on “the characteristics of good governance including transparency, clarity and certainty”. And for both the ATO and AusIndustry to take a fairer, more consistent, educative and customer-focused approach.

Clearer Guidance from AusIndustry

Furthermore, Ms Carnell has lobbied for guidance materials issued by the ATO and AusIndustry to be clearer. They need to be more comprehensive and put through consultation with small business owners. Agency record-keeping requirements need to be simplified and take into account commercial practicalities for business

The R&D Tax Incentive is of paramount importance to SMEs and business as a whole in Australia. The number of companies claiming R&D offsets has increased from approximately 6,400 in 2013 to closer to greater than 13,000 in the past financial year. However, the 2019 budget cut the R&D Tax Incentive by a further $1.35 billion, coming after cuts of more than $4 billion in the two previous years. Should the proposed changes to the R&D Tax Incentive be pushed through the Senate in 2020 then there will be even more substantial budget cuts in the coming years.

In August of this year, Tax Commissioner Chris Jordan called for the ATO to step away from overseeing the R&D Tax Incentive, claiming that “structurally there is a problem” in the administration of the program.

However, the report published by Ms Carnell makes some fairly straightforward and easy to implement recommendations. Some that even Tax Commissioner Chris Jordan can get behind.

SME’s want certainty

After all, Australia’s hard-working and innovative SME community just want greater certainty and encouragement from the Government when embarking upon cutting edge R&D.

Ms Carnell recommended that “small business must be assisted to identify and retain professional and responsible R&D consultants”. She urged companies who are currently conducting R&D to obtain guidance. Be aware of the implications and plan accordingly.

Clearly, it’s now more important than ever to obtain professional guidance. If you are currently undertaking or planning to undertake research and development contact BridgePoint Group for advice.

For specialist assistance and advice understanding R&D Tax Incentives, contact Alan at the BridgePoint Group.

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Alan Baghdasarayan

GOVERNMENT GRANTS & INCENTIVES DIRECTOR

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