• Incorrectly claiming the Wine Grapes Levy as R&D expenditure

    The ATO and the Department of Industry, Innovation and Science are warning about a scheme where some promoters, including those operating under reputable brand names, are advocating that companies who pay the compulsory Wine Grapes Levy (the levy), can register the activity with the Department of Industry, Innovation and Science or simply claim the levy, as all or part of a notional deduction in calculating their entitlement to an R&D tax offset.

    The levy is paid by wine producers to the Department of Agriculture and Water Resources and is calculated based on the total number of tonnes of grapes used by the wine producer in a year.

    The levy is applied to fund the marketing and research and development programs undertaken by the Australian Grape and Wine Authority (‘Wine Australia’). Wine Australia is not a registered Research Service Provider (RSP) nor a Cooperative Research Centre under the R&D tax incentive program.

    What are our concerns?

    The ATO and Department of Industry, Innovation and Science are concerned that some wine producers have been misled into thinking they are able to include the levy as eligible R&D expenditure which has been incurred on registered R&D activities.

    The levy can usually be claimed by a wine producer as an ordinary business deduction against the wine producer’s assessable income. However, the way R&D commissioned by Wine Australia is conducted, means that the levy cannot be claimed in calculating a refundable or non-refundable R&D tax offset for the wine producer.

    Levies paid to industry organisations can only be claimed in calculating an R&D tax offset if the industry organisation is a Levy Collecting RSP. Wine Australia is not a Levy Collecting RSP.

    Generally, eligible R&D expenditure can only be claimed on R&D activities which are registered by the claimant with the Department of Industry, Innovation and Science. If the R&D activity is carried on for the claimant by a third party, the claimant needs also to be able to show that:

    • it has effective ownership of the know-how, intellectual property, or other results arising from the R&D expenditure
    • it has appropriate control over the conduct of the R&D activities
    • it bears the financial burden of carrying out the R&D activities
    • the R&D activity is not carried out to a significant extent for another entity, or entities.

    It follows that although a company which produces wine may have registered R&D activities with the Department of Industry, Innovation and Science, the company’s expenditure on the levy bears no connection with the R&D activities it carries on.

    In addition, the funds provided through the levy are used by Wine Australia to invest in R&D activities undertaken by research bodies based on the R&D provider’s own project proposals and are conducted at the direction of Wine Australia. The know-how and intellectual property arising from the R&D activities is retained by the entities investing in the R&D, and as is the case with the financial risk, the results are broadly shared.

    Finally, the R&D activities commissioned by Wine Australia are carried on for the benefit of the broader grape and wine industry, not just for individual companies that pay the levy.

    We also note that many of the activities carried on by Wine Australia which are funded by levies, such as marketing and promotion, are expressly excluded from the definition of R&D activities and therefore related expenditure cannot be included in an R&D tax offset claim.

    What should you do?

    You should consider whether our concerns are applicable to your circumstances.

    The ATO is committed to maintaining the integrity of the R&D program. We deal firmly with dishonest promoters whilst providing fair outcomes for taxpayers who have inadvertently entered into an R&D scheme or relied on advice they obtained in good faith.

    If you consider that our concerns are applicable to your circumstances, you may want to:

    • phone us at the contact details provided below
    • seek independent professional advice
    • ask the ATO for a private ruling, or in the case of verifying that your R&D activities are eligible, apply for a Finding from the Department of Industry, Innovation and Science
    • apply to the Department of Industry, Innovation and Science to amend or withdraw your registration or make a voluntary disclosure to the ATO or amend your tax return.

    Penalties can apply if you have incorrectly claimed the R&D tax incentive but will be significantly reduced if you make a voluntary disclosure. Generally, the reduction in penalties is greater if you make a voluntary disclosure before we notify you of an examination of your tax affairs.

    Registered tax agents, including R&D consultants, who advise or encourage companies to make incorrect R&D claims may be referred to the Tax Practitioners Board to consider whether they have breached the Tax Agent Services Act 2009. Promoter penalty laws may also apply to the promoters of schemes designed to inappropriately access the R&D tax incentive.

    To provide information about this or another arrangement, or a promoter of this or another arrangement, please either phone Brett Challans on 08 7422 2382 or Jim Robinson on 08 7422 2662, or email us at InnovationTax@ato.gov.au

    See also:

    Last modified: 26 Jun 2017QC 51889