When companies claim an offset under the Research and Development (R&D) tax incentive, they will be required to maintain records and comply with the requirements of the program.
The Administrative Appeals Tribunal (AAT) recently affirmed our decision in T.D.S. Biz Pty Ltd v Commissioner of Taxation [2023] FCA 710External Link to amend tax assessments and impose shortfall penalties.
The company indicated their R&D activities were conducted solely within Australia and no expenditure had been claimed on activities conducted overseas. Our audit found the company conducted significant R&D activities outside Australia by purchasing components designed, developed and fabricated overseas without an Advance Overseas Finding from the Department of Industry, Science and Resources.
We amended the company’s 2018 income tax return to disallow their R&D specific deductions; but allowed those deductions to be claimed as general deductions in this instance. As a consequence of the amendment, the company's refundable offset was reduced by over $700,000 and shortfall penalties of over $350,000 were applied. This is because they made false statements in their R&D application.
While companies can claim an offset for R&D expenditure incurred by them on R&D activities conducted overseasExternal Link, rules and limitations apply, including holding an Advance Overseas FindingExternal Link for those activities. The anticipated expenditure incurred on the overseas activities must also be less than expenditure on Australian activities over the life of the relevant activities.
If you plan to claim the R&D offset this tax time, read about your eligibility. If you’re unsure about your eligibility, or the legislation, seek assistance from a registered tax professional.
We aim to increase transparency within the R&D program and will hold companies to a high standard when it comes to complying with, and understanding, R&D laws.
The Federal Court recently affirmed our decision to disallow an objection to a notice of amended assessment.