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Tax Commissioner Comments On R&D Tax Incentive Compliance Difficulties

During a presentation to the Council of Small Business Organisations of Australia National Small Business Summit, tax commissioner Chris Jordan has commented that there is a structural problem with the operation of the R&D Tax Incentive, particularly surrounding the self assessment regime whereby the ATO may undertake reviews following a previous registration of R&D Activities and receipt of funds.

In comments published by the Sydney Morning Herald, Chris Jordan was critical of the R&D “industry” that has emerged in professional services firms, and indicated that R&D is one of the most difficult and most emotional areas of compliance undertaken by the ATO.

The tax commissioner’s comments have been made following The Australian Small Business and Family Enterprise Ombudsman’s announcement that they will deliver the findings of an investigation into the processes for compliance reviews of companies registering activities under the R&D Tax Incentive.

In response to the concern’s highlighted by the tax commissioner, Swanson Reed notes:

• There have been some participants that have misused the R&D Tax Incentive or incorrectly made claims. We support all reasonable measures to mitigate such behaviour to maintain programme integrity and sustainability;
• Swanson Reed as a firm take our role in promoting sound R&D Tax Compliance seriously. We seek to ensure that claimants under our guidance comply with the letter and spirit of the R&D Tax Law. We also actively encourage claimants to review guidance material published by the regulators (the ATO and AusIndustry), along with any relevant judicial decisions;
• In our consultations with regulators during past reviews and surveys of the programme operation, we have proposed initiatives that could potentially address some of the deficiencies with the self assessment regime, including:
  • The introduction of a specific accreditation and compliance protocol for firms acting as R&D Tax Advisors or Specialists;
  • A mandatory pre-registration review for first time claimants, or claimants over a relevant threshold;
• Whilst the self assessment regime has its flaws, in our view, it is important that the broad entitlement-based design of the R&D Tax Incentive remain, rather than a transition to a competitive/discretionary grant programme model. The certainty and efficiency of an R&D Tax benefit entitlement (as opposed to the time and uncertainty inherent in a grant application) is the best means to encourage companies to undertake R&D Activity.

Swanson Reed supports the efforts of the ATO and AusIndustry to uphold the integrity of the R&D Tax Incentive, and encourages all participants of the programme to review the R&D Tax Incentive guidance material published by these agencies.