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Are you claiming R&D tax incentives correctly?

Research and development helps with innovation, but incentives are only available for certain activities.

Research and development (R&D) is key for innovation, as it enables businesses to invest in activities that stimulate growth and bring new products and services to market quicker.

One way that the Australian government encourages organisations pursue R&D is through an incentive program, which offers eligible entities a tax offset on their research-oriented spending.

The R&D Tax Incentive has two main elements:

  • A refundable tax offset for organisations with revenues under $20 million; and
  • A non-refundable tax offset for all other eligible organisations.

According to the Australian Taxation Office (ATO), the incentive meant 13,700 entities spent a collective $19.5 billion on R&D in 2013-14 and were able to claim back approximately $3 billion.

However, the ATO has strict criteria regarding what can be claimed as R&D expenditure, so it's important to contact an experienced accountant who can discuss the incentive in more detail with businesses that may be confused.

Tax incentives and accounting services in Geelong.Organisations can only claim R&D tax incentives if they meet eligibility the ATO's criteria.

False claims draw ATO's attention

The ATO recently released two alerts urging taxpayers to ensure they are aware of eligibility rules, following a number of incidents of both accidental and intentional wrongful claims.

ATO Deputy Commissioner Michael Cranston said firms in the building and construction industry were particularly responsible and had been lodging R&D spending for activities specifically excluded from the incentive.

"We have seen an increase in claims for ordinary business activity expenses, or for large parts of projects that do not correspond to the scale or scope of experimental activities," he explained.

"The alerts are designed to clarify what can and cannot be claimed, and help businesses to avoid mistakes."

"We often see issues including claims that encompass whole of projects (where project, management, environmental and commercial risks are mistaken for technical risks) and where the activities use existing knowledge and expertise."

Making legitimate claims

The ATO has warned taxpayers that it's currently carrying out various compliance processes to catch entities that are deliberately misusing the scheme.

Businesses should seek help from their tax adviser in order to correctly apply for the R&D Tax Incentive, as well as maintain supporting documentation in case of any disputes or confusion.

"The alerts are designed to clarify what can and cannot be claimed, and help businesses to avoid mistakes such as ordinary business activities being self-assessed as R&D activities," added Mr Cranston.

Would you like help with your obligations in relation to the R&D Tax Incentive? Please get in touch with WMC Accounting today for help in this area and other tax and auditing services in Geelong.

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