The R&D Tax Incentive includes a related party integrity provision whereby if a company incurs R&D expenditure to an associate, it must pay that amount in the same year to claim a notional deduction for that amount in that year (provided all other eligibility requirements for the R&D tax incentive are met).
Associates are those entities that, by reason of family or business connections, might appropriately be regarded as being associates of the R&D entity, and relevant examples of the scope of these provisions are included on the ATO website.
Paying an amount to an associate can include making a constructive payment, where an entity applies or deals with the amount on their behalf or as they direct. The ATO usually only accepts constructive payments for R&D Tax where there is a valid and documented charge going back the other way, which can be netted off against the associate R&D entity charge.
In recent times, the ATO have raised some issues on the associate entity payment provisions, which R&D Entities should be mindful of leading into the end of the financial year, which is 30 June for most companies.
In particular, payments are not considered to be validly made under the R&D Tax associate entity payment rule when:
Companies should ensure that they keep up to date with the R&D Tax associate entity payment guidance on the ATO website.