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R&D Tax Incentive – Reminder of Key Points Before 30 June

Companies planning registration of R&D activities in the FY22 period (for the YE 30 June 2022) should be mindful of the following before the upcoming end of the financial year:

• Findings for overseas activities: Companies seeking to claim expenditure for overseas activity in their FY22 R&D claims must apply to claim these costs by lodging an Overseas Finding Application before the end of the financial year (i.e. 30 June). In addition to general eligibility criteria, there are specific and extensive rules to determine whether expenditure on overseas activities is eligible for the R&D Tax Incentive;
• Payment of R&D expenditure incurred from associate entities: R&D expenditure incurred from associate entities must be documented and paid prior to the end of the financial year (i.e. 30 June) to be claimed as an R&D Tax Offset in this year;
• Collation of substantiation: Financial year end is an important time for companies registering R&D activities to file records that may be required by AusIndustry or the ATO to substantiate that the activities occurred and were in accordance with the legislation. Key records currently being focused on by the regulators include:
  • Records and explanation of the process companies undertook prior to conducting R&D activities to determine that the knowledge sought to be generated was new, and unable to be determined in advance;
  • Records for accurate determination of R&D hours for employees, and the basis for which any contractor costs relate to R&D activities;
  • Ensuring the basis of any apportionment reflects the extent to which the expenditure has been incurred on R&D activities.

Companies should also note that the major changes to the R&D Tax Incentive announced in the October 2020 budget are now in effect and at the conclusion of the financial year ended 30 June 2022, companies will begin reporting claims under the changes.

The ATO has published its Research and Development Tax Incentive Schedule 2022 (NAT 73794) with corresponding changes to the labels to reflect the legislative changes.

We understand the ATO will in future also publish further guidance covering the major R&D tax changes in FY22 including changes to uniform clawback and offset calculations.

Contact our office for more information or for help with your R&D Tax Incentive application.