The R&D Tax Incentive (RDTI) landscape has been particularly fluid over the last few years. As such, CharterNet has launched a quarterly update covering key topics relating to the RDTI to ensure claimants have the most up to date information. This covers areas such as changes to legislation, R&D related news, case studies, and think pieces.
As of 8 November 2021, the R&D Portal had a number of updates which have changed the way companies can register their R&D Applications (Claims). While many of these changes are relatively minor, claimants should be aware of the impact they may have on their claims.
- Firstly, changes have been made to “supporting only” Claims. In short, these are Claims that have core activities commencing in future years, whereby a hypothesis is no longer required. Now, claimants must provide a brief explanation of the planned R&D activities under a brief 1,000-character limit.
- Secondly, you should not be surprised if you see a double-up in R&D agents within the Registrations, as the portal now requires separate disclosures of tax agents and R&D consultants within the application. This appears to be simply an administrative update, and should not impact claims in a substantial manner.
- Finally, while you may not see this in other announcements, for first-time registrants, AusIndustry now has a processing time of applications may take upwards of 40 days. This is a significant increase to the timeframe of 5-10 business days expected in prior years. It is unlikely that it will take the full 40 days for the Notice of Registration to be provided, however, first time registrants should be aware that there may be an extended waiting period before the Notice is provided. This means that first time claimants should seek to lodge their claim as early as possible to enable greater flexibility in budgeting.
R&D News – Administration of the RDTI
A report by the Australian National Audit Office (ANAO) on the administration of the RDTI by the Australian Tax Office (ATO) and AusIndustry was released on the 25 November 2021.
While the audit concluded that the administration was largely effective, some areas of concern were identified by the report. For example, only 21% of applications for Advance Findings and 11% of Advance Overseas Findings were processed within the targeted timeframe of 90 days. Furthermore, the investigation suggested that no coordinated approach appears to exist between the agencies regarding additional compliance and integrity activities. Based on this, the audit concluded that the ATO had not met its commitments to the government.
As a result of the audit, the ANAO made three overarching recommendations, to which AusIndustry and the ATO have agreed. These are:
- AusIndustry should investigate why certain entities do or do not apply for Advance Findings. AusIndustry will also establish strategies to encourage entities to register activities as R&D activities even if they are uncertain of its eligibility, such as decreasing the timeframes to process Advance Findings and Advance Overseas Findings.
- AusIndustry should reduce the duration of reviews (referred to as examinations throughout the report) where the eligibility of the registered R&D activities is unclear. This includes the reduction of instances where reviews can be discontinued by AusIndustry without definitive findings and without issuing findings of ineligibility where activities are ineligible.
- The ATO should implement new monitoring and reporting strategies to more effectively assess compliance with the RDTI.
Further details regarding these recommendations can be found in the linked report
What does this mean for companies looking to claim?
Hopefully, claimants should now receive a definitive finding for their applications for Advance Findings and Advance Overseas Findings than in previous years, with shorter processing times from AusIndustry. This should enable more flexibility from claimants to complete effective budgeting.
It is likely that the report will result in additional compliance activities from both AusIndustry and the ATO. Claimants should be aware of this increased scrutiny, and remain vigilant in what they claim and maintain a conservative approach to ensure that they are not claiming outside the bounds of the RDTI.
Despite this, it should be noted that these agreements are acknowledgements only, and it may take several years for AusIndustry and the ATO to implement any permanent changes.
Focus area – Temporary Full Expensing Rules
Temporary full expensing (TFE) of depreciating assets was introduced as an initiative launched by the government to support COVID-19 business recovery. TFE applies to eligible assets first held or first purchased between 6 October 2020 and 30 June 2022. This allows the full write-off of all eligible assets within the relevant period.
Eligible assets are any new or second-hand assets held at or after 6 October 2020, or first used and installed for a taxable purpose between 6 October 2020 and 30 June 2022. This eligibility is subject to exclusions, specifically in relation to:
- Assets in a low-value or software development pool;
- Primary production assets;
- Assets outside of Australia; and
- Buildings and other capital works which can be deducted under Division 43 of the Income Tax Assessment Act 1997 (ITAA).
Ultimately, instead of claiming depreciation amounts on any assets purchased or held between these dates, R&D notional deductions can be taken for the full amount for the relevant financial year (i.e. the full amount can be claimed upfront in the Claim). To the extent that this relates to R&D, these assets can be apportioned and included in the claim.
This is good news for those who are seeking a cash boost, as the new rules essentially accelerate claims that you can make on the decline in value of tangible assets being used either for business purposes or R&D purposes.
That’s a wrap on the RDTI for 2021. We hope that you all have a great holiday and look forward to providing you with more updates in 2022.
If you have any questions, please contact your CharterNet team member.