ATO report offers opportunity to benchmark R&D: RSM
The release of the ATO’s R&D transparency report may prompt companies to consider their R&D spending more closely and compare it with their competitors, says RSM.
The release of the ATO's first annual research and development tax incentive transparency report may help drive an improvement in R&D spending in Australia by entities across all industries as businesses will be able to benchmark their spending against that of similar businesses, according to RSM Australia's national director of life sciences, Dr Rita Choueiri.
The ATO released the report earlier this month which provided data on the benefits being received by R&D entities.
Speaking to Accounting Times, Choueiri said businesses can use the data to get a sense of how their R&D claims rank against their competitors.
"If companies are seeing that their competitors are spending more on innovation than they are then that might drive them to make strategic decisions about ramping up their own R&D efforts or it may also prompt them to reconsider the eligibility of their own activities," she said.
Choueiri said there is often a lack of awareness or knowledge about the rules so companies put claims for R&D tax incentives in the too-hard basket.
"In addition to making an R&D tax claim, the company needs to be keeping good records and that doesn't necessarily align with the general sort of practices in manufacturing or technology where R&D just happens," she said.
R&D is a term defined in tax law and companies need to be aware that there is a specific definition that requires them to keep good documentation and be able to showcase the scientific method or progression of work through the scientific method, she explained.
"That's something that we see a lot of companies not doing well. They're either self-claiming or they're using advisors that aren't experienced in R&D tax."
R&D transparency report could shape ATO's compliance activities
Choueiri said the R&D transparency report may also potentially drive the ATO's future compliance activities in this area.
"It may be a surprise that some companies have much higher claims than others, particularly to the public, and we may see complaints being made to the government about the amount a company is spending on research and development [and receiving in tax incentives]," she said.
This could lead to increased compliance activity in certain areas, according to Choueiri.
She noted that the ATO already has specific areas it is looking at such as associate payments and whether the company has made the payment.
"Another area it is looking at is inbound arrangements where companies coming in from overseas set up an entity in Australia to undertake business and R&D activities in Australia but are also claiming overseas expenditure as part of those arrangements," Choueiri said.
"We are also seeing the ATO be a lot more active in doing what we call pre-issue checks where before they release a refund to a company they send out a standard request for information to check the eligibility of the expenditure being claimed."
About the author
