November 6th, 2023
On 27 Oct 2023 the ATO posted a new guidance document titled ‘Clarifying R&D program integrity rules’.
The document covers areas of R&D Compliance that the ATO are concerned with including:
- R&D expenditure to associates
- The conducted for test
- Aggregated turnover for determining eligibility for Refundable R&D Tax Offsets
- Overseas activity expenditure
- Expenditure not at risk.
Nothing in this new guidance document is new or surprising, however the guidance is important in specifying current areas of ATO focus and concerns.
In particular the following areas should be noted:
- Payment to associate rules:
- The ATO regard the following arrangements as not resulting in the expenditure being paid to the associate:
- If the amount owed to the associate is converted to a loan. This is not payment, and the ATO consider the amount unpaid.
- The R&D entity and the associate enter a licencing agreement where the licence fee payable by the associate is offset against the amount the R&D entity owes the associate for R&D services. In other non-arm’s length arrangements, the amount being transacted is often more than market value.
- Circular, round robin type transactions that are artificial in nature and contrived to receive a taxation benefit.
- Overseas Activity Expenditure:
- Overseas expenditure can only be claimed for activities conducted overseas where the entity has an overseas findingExternal Link from the Department Industry, Science and Resources (DISR). Without one, claimants must demonstrate the work was carried out in Australia and not subcontracted out or otherwise performed overseas. The ATO consider the physical location of where the work is conducted.