Spending by associated entities or activities conducted overseas will be subject to increased scrutiny, the Tax Office says.
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The ATO has released two taxpayer alerts warning about incorrect R&D tax offset claims involving spending by associated entities or activities conducted overseas for foreign-related entities.
Taxpayer Alerts TA 2023/4 and TA 2023/5 said taxpayers and advisers using either arrangement would be subject to increased scrutiny and possible penalties if the R&D tax incentives were being wrongly applied.
In a guidance update, the ATO said:
“We’re concerned these arrangements are being used to:
claim the R&D tax offset in situations where it would not otherwise be available, either at all or in the income year claimed by the R&D entity.
artificially increase the amount of the R&D tax offset claimed.”
Regarding TA 2023/4, “Research and development activities delivered by associated entities”, the ATO said: “We’ve identified arrangements where an entity incorrectly claims the R&D tax offset for expenditure incurred under an agreement with an associated entity who conducts those activities.”
Arrangements of concern included those where a “service provider”, which was usually an entity that conducted a group’s trading and research activities, operated as a contractor to provide R&D for the entity claiming the incentive. The service provider would not normally be entitled to claim the incentive and the body making the tax claim had little or no activity other than the specific R&D arrangements.
“In substance and effect, the refundable tax offset is the R&D entity’s only receipt and the only amount used to service the R&D entity’s payment obligations to the service provider,” the alert said.
Taxpayer Alert TA 2023/5, “Research and development activities conducted overseas for foreign related entities”, similarly outlines ATO concerns about arrangements where Australian entities claim the R&D tax offset for expenditure incurred on R&D activities conducted overseas.
“Arrangements of concern include where an R&D entity has purported that R&D activities were conducted for its own benefit, but those activities were instead conducted for a foreign entity that is ‘connected with’, or is an ‘affiliate’, of the R&D entity,” it said.
“We are concerned that R&D entities do not qualify for an R&D tax offset under Division 355 of the ITAA 1997 for expenditure incurred by them on R&D activities conducted overseas as the R&D activities were:
not conducted for the R&D entity, or
conducted to a significant extent for the foreign related entity, and that entity does not satisfy the statutory conditions for eligible R&D activities.”
The ATO said penalties could apply to participants in these types of arrangements although they might be “significantly reduced if the amendment request is treated as a voluntary disclosure”.
Philip King 18 December 2023 accountantsdaily.com.au
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Accounting & Taxation
We believe accounting services should be straight forward and stress-free. By providing cutting edge bookkeeping, accounting, taxation and financial solutions and using the right products for your record keeping, our team at Milton Advisory will work with you to understand your needs and help you achieve your goals, making it easier for you to manage your cash flow and meet your tax obligations.
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Sole trader: an individual operating as the sole person legally responsible for all aspects of the business. Like other structures, as a sole trader you can employ people to help you run your business. The structure is inexpensive to set up because there are few legal and tax formalities. Partnership: an association of people or entities running a business together, but not as a company. A partnership is relatively inexpensive to set up and operate. Company: a legal entity separate from its shareholders. It is a complex business structure, with set-up and administrative costs that are usually higher than for other business structures. Trust: an entity that holds property or income for the benefit of others. Trusts require a formal trust deed that outlines how the trust operates, require the trustee to undertake formal yearly administrative tasks and if you operate your business as a trust, the trustee is legally responsible for its operations. A trustee of a trust can be a company, providing some asset protection.
Companies and Trusts are more complicated business structures but they have their advantages and Milton Advisory can discuss these with you. It is important to note that you can change your business structure throughout the life of your business.
Milton Advisory has the experience and understanding of the legal and regulatory framework that applies to business entities and we can help you understand the myriad compliance programs and regulated obligations that affect your business/company. We will make sure your business/company meets all its obligations to ASIC (Australian Securities & Investments Commission), the ATO (Australian Taxation Office) and the SRO (State Revenue Office of Victoria). Compliance is of paramount importance but we also believe that management advice and support is a crucial aspect of corporate accounting.
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The formation of trusts and new company registrations
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Wealth creation, management and protection is a team sport. You need your team to consist of competent professionals and a high quality, well qualified and experienced financial planner should be top of the list.
A client needs to put in place the right strategies and structures, to create and protect wealth and then review these strategies and structures on a regular basis. That is because your circumstances and goals will change and so will the economy and the legislation relating to how your affairs are structured.
Milton Advisory maintain a close relationship with a local financial planner who we trust to help you navigate this important side of your finances.
Setting up a Self-Managed Superannuation Fund is a major financial decision. We understand that you’re busy and that the SMSF rules are complicated. We will provide you with an end to end solution giving you access to all the support and expertise you need to ensure your SMSF is well managed and compliant.
A SMSF can have many advantages but, equally, you need to consider the reasons why a SMSF may not suit your needs. We can help you decide if this is the right option for you.
Advantages of a SMSF:
Having control of your retirement savings can lead to a deeper understanding of how your overall wealth is tracking, and gives you more confidence in your investment and lifestyle decisions.
You can have access to a broader range of investments. You can invest in the usual options such as shares, term deposits, managed funds and property but you can also hold alternative assets such as artwork, jewellery, antiques, and wine. There are though, very strict rules on holding the latter assets in your self-managed super fund.
You retain control while still being able to take advice from your advisors.
Beneficial tax planning strategies.
Greater flexibility for accessing Centrelink benefits such as the age pension.
But a SMSF is not for everyone:
If you have set up a self-managed super fund (SMSF), you are in charge and you make the investment decisions for the fund. You must also be aware that you are responsible for complying with superannuation and tax laws, maintaining records, providing financial statements, completing tax returns and organising an annual independent audit.
You also need time and expertise to run your SMSF.
Compliance is very important.
There can be up to 4 Trustees and their thoughts and ideas have to be included.
The ATO offers advice on the responsibilities of having a SMSF.
Milton Advisory offers advice on all SMSF services, including:
The setting up of a SMSF and all administration tasks such as preparation of your trust deed and the completion and lodgement of relevant ATO statements.
Superannuation consolidation.
Ensuring your SMSF is compliant with current superannuation laws and regulations
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If there is more than one member in your SMSF, we can offer advice on what will happen in the event of ill health, death, relationship breakdown, or waning interest.
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