Vision Intelligence Pty Ltd and Commissioner of Taxation [2013] AATA highlights the importance of independent tax advice

October 23rd, 2013

The recent AAT decision, Vision Intelligence Pty Ltd and Innovation Australia [2013] AATA 527 was a taxation appeals case that related to a taxpayer’s calculation of expenditure items within its R&D tax claim submission and the possible penalties the ATO may impose on that taxpayer for recklessness in the calculation.

This case is relevant to companies that wish to reassess their ‘risk profile’ and ‘reasonable care’ position with respect to the R&D Tax Incentive.

Background

  • Vision Intelligence (or the Applicant) engaged a management and technology consultancy called CTC to prepare an R&D tax claim on a success basis.
  • The Applicant then engaged a CTC associate company ThorSol Technologies (TST) to conduct R&D activities on its own behalf.
  • TST issued an invoice of $1,089,796.40 (inc GST) to Vision Intelligence for R&D work conducted in that financial year.
  • Vision Intelligence never paid the invoice.
  • Vision Intelligence lodged an R&D tax concession application with AusIndustry for the the work conducted by TST.
  • The lodged R&D tax Schedule sought a $371,521 refund from the ATO.
  • The ATO requested further information, however ultimately issued an amended tax assessment disallowing the R&D Tax offset.
  • The ATO imposed a penalty to the Applicant for lack of ‘reasonable care’.
  • Vision Intelligence sought advice from an independent expert. The advice made comments of a general nature that ‘reasonable care’ was taken during the R&D claim process.

Decision

The AAT concluded that the R&D expenditure was not incurred and issued a 25% penalty for lack of ‘reasonable care’ taken during the R&D tax claim process.

The Tribunal also found that the advice received from two external experts during the R&D tax claim process could not be used to evidence ‘reasonable care’ by the Applicant.

Deputy President Deutsch made specific reference to the fact that the first R&D tax advice lacked ‘independence’ as it was on a success basis.  Further, the Applicant’s second advice could not demonstrate ‘reasonable care’ as it was general in nature and drafted after the lodgement of the tax return.

Learning Points

There is now precedent that in an R&D tax matter, a ‘reasonable care’ position may only occur by utilising the services of an independent R&D tax agent, where:

  • that tax agent’s fee for the advice is not contingent on the success of the Applicant’s R&D tax claim; and where
  • the tax agent’s advice is specific in nature and finalised and presented to the Applicant prior to lodgement of the R&D claim.

Swanson Reed recommends that any R&D tax claimant follow the processes highlighted in this case where it desires an independent due diligence of its current or future claims.

To view the full case, click here

 

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