Board of Taxation Review to Evaluate the Dual-Agency Administration Model for the Research and Development Tax Incentive

July 12th, 2021

Australia’s R&D tax incentive program is dually administered by two government agencies:

  • AusIndustry (on behalf of Industry Innovation and Science Australia): registers R&D activities disclosed in applications lodged with the agency. AusIndustry has authority to make findings on eligibility of activities.
  • The Australian Taxation Office (ATO): administers R&D tax offset entitlements disclosed in company income tax returns lodged with the agency. The ATO reviews compliance matters such as substantiation of expenditure and structural tax issues such as on whose behalf activities are conducted.

In the May 2021 budget the government announced that the Board of Taxation would undertake a review to evaluate the dual-agency administration model for the R&D tax incentive. The purpose of the review is set out in the Terms of Reference published on the board’s website, and includes:

  • “analyse R&D administration models in other comparative jurisdictions and consider how the international experience may inform improvements to Australia’s R&DTI dual agency delivery model;
  • consult with taxpayers to obtain an insight into their experience during the registration and claiming process, including their understanding of the different roles and responsibilities of the ATO and IISA in administering the program;
  • consider any new and streamlined processes undertaken by the two agencies in response to previous reviews of the scheme’s administration, such as the 2016 Review of the R&DTI and the recent Australian Small Business and Family Enterprise Ombudsman review; and
  • identify the advantages and disadvantages of its recommendations, any potential financial impacts, and any trade-offs between simplification and/or reductions in compliance costs and the scheme’s integrity.”

Over the coming months, the board is looking to conduct consultations as part of their review, and Swanson Reed has been invited to contribute.
 
Whilst there are elements of a dual agency that will inevitably be imperfect, we do not propose that any major changes be made to the program, since:
  • The compliance domains of the respective agencies are very distinct, and require differing skill sets and training:
    • ATO R&D tax assessors often require knowledge in accounting, tax and commercial law;
    • AusIndustry assessors require knowledge in science and engineering to make assessments on whether activities generate new technical knowledge, and have unknown outcomes;
  • The program has been the subject of a prolonged period of actual and proposed change over the past decade. Changes impacted underlying legislation, interpretation of legislation and administrative management of the program. Following passage of the major program legislative reforms last year, a period of stability should prevail.

We further note that in our experience, we have not experienced major incidence of problems that could be presented by a dual agency model, such as:

  • R&D entities being subject to duplication of compliance proceedings;
  • administrators from either agency making assessments beyond their scope (there was some incidence and reports of this a few years ago, but we have not encountered it lately).

Swanson Reed’s contribution to any review will call for maintenance of stability in the program.

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