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Australian National Audit Office Report Recommendations from Review of R&D Tax Incentive’s Administration

The Australian National Audit Office (ANAO)’s purpose is to support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, and thereby contribute to improved public sector performance.

Changes to the R&D Tax Incentive administration announced by the Government in the May 2018 budget included: additional funding for improved guidance and litigation; enhanced compliance activities; and ICT system improvements. As reported earlier in 2021, the ANAO has undertaken a review of the administration of the R&D Tax Incentive (R&DTI) Programme, including the implementation of the changes announced in 2018.

The objective of the ANAO audit was to assess the effectiveness of the programme’s dual administrators (being 1: The Department of Industry, Science, Energy and Resources and 2: The ATO) and to form conclusions involving the following criteria:

• Did the dual administrators have effective communication, registration and claims processing arrangements?
• Did the dual administrators have effective compliance arrangements?
• Did the dual administrators have effective performance monitoring, reporting and evaluation arrangements?

Findings of the ANAO review were released in November 2021, reporting that the dual administrators were largely effective in their administration of the programme. The ANAO did, however, note that there were some issues around reporting arrangements, the joint approach to compliance and timeframes for Advance and Overseas Finding assessments.

The following recommendations were published in the ANAO report, along with the administrator response:

Recommendation 1:

To further improve processes relating to advance findings, IISA and Department of Industry, Science, Energy and Resources:

• • undertake analysis to better understand why entities do and do not apply for advance findings;
  • develop a strategy to encourage entities who are most uncertain about the eligibility of their activities to apply for an advance finding; and
  • set public service standards relating to the timeliness of processing advance and overseas findings (and other statutory assessments).

Industry Innovation and Science Australia response: Agreed.

Department of Industry, Science, Energy and Resources response: Agreed.

Recommendation 2:

IISA and Department of Industry, Science, Energy and Resources improve examination processes in order to give entities greater certainty and reduce the potential for future duplicative compliance action by:

• • reducing the time taken to undertake examinations;
  • reducing the instances where examinations are discontinued; and
  • issuing a finding of ineligibility if activities are ineligible.

Industry Innovation and Science Australia response: Agreed.

Department of Industry, Science, Energy and Resources response: Agreed.

Recommendation 3:

The ATO establish monitoring and reporting arrangements to assess the effectiveness of its compliance approach for the R&DTI program, including implementation of the 2021 R&DTI compliance strategy, high risk refund process and other R&DTI compliance activities.

Australian Taxation Office response: Agreed.

It is worth noting that the Board of Taxation has also been undertaking a review of the dual-agency administration model of the R&D Tax Incentive during 2021.

Reviews of the R&D Tax Incentive are important given its large cost; however, Swanson Reed hopes no major or adverse changes are proposed to the R&D Tax Incentive from these reviews. All stakeholders are likely yearning for a period of stability in the programme, noting that:

• The past 5 years has already been a tumultuous period in the history of the R&D Tax Incentive with many actual and proposed changes in law and administrative operation of the programme;
• Participants must over the coming months adapt to changes in FY22 arising from the measures announced in the previous 2020 budget, including the intensity threshold and clawback changes;
• New administrative and reporting requirements for FY21 (specifically, changes to the registration application process) were announced and implemented from July 2021;
• We anecdotally note that the operating environment for the R&D Tax Incentive is the most stable and fair that it has ever been, and are optimistic that the programme is headed in the right direction.