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ATO Update Titled ‘R&D Tax Incentive: Future Focus’ and Upcoming Dual Agency Compliance Reviews

Participants in the R&D Tax Incentive can expect a greater level of compliance activity soon.

The ATO has published an update this month titled ‘R&D Tax Incentive: Future Focus’.

The update announced a series of future-focused initiatives aimed at ensuring the integrity of the Research and Development Tax Incentive (R&DTI) program.

The ATO update notes that the ATO will be collaborating with the Department of Industry, Science and Resources (DISR, or AusIndustry) as well as educating companies and R&D consultants about risk areas and common mistakes.

There are two main tenets which form the announcement:

Random Joint Reviews

Historically, compliance activity has been done by ATO and AusIndustry separately based on their respective jurisdictions:

• ATO:
  • Assess eligible expenditure and substantiation;
  • Assess technical issues such as whether the activities were conducted on behalf of the R&D entity, and at their financial risk;
• AusIndustry:
  • Assess whether the activities meet the eligibility criteria underDiv 355 ITAA1997;

Concurrent reviews by both agencies have been known to happen, however they’ve mostly occurred in situations once concerns around compliance are identified.

The ATO have announced this month the introduction of upcoming random joint reviews of R&DTI claims with AusIndustry, whereby reviews of R&D activity and expenditure eligibility will occur concurrently. The data collected from these reviews is expected to contribute significantly to the overall transparency of the program and, importantly, identify areas for improvement and education.

Possibly, the dual agency reviews will logistically occur by a company receiving two separate requests from the respective agencies at once.

We hope that the dual agency reviews are of a suitable level of intensity (at least initially, unless or until non-compliance is identified) to balance the need to maintain programme integrity against the pressure that handling two separate compliance reviews may subject a business to.

Swanson Reed supports the important role that the programme regulators play in upholding integrity and recognises that compliance activity is an important function.

The Focus on Transparency Reporting

The recent ATO update also mentioned the separate programme of work around the ATO’s efforts on the previously legislated and reported transparency provisions

This will see the introduction of an annual transparency report, starting in September 2024 including entity names, ABN or ACN, and total notional deductions. Confidential project details will not be published.

See our earlier and in-depth release about the ATO’s decision to Release Information Around Public Disclosure of R&D Claimant Information

Please get in touch with our office if you would like to speak to someone about a potential claim, or check out our website for more information.