The government’s R&D Tax Incentive has attracted claims of excessive red tape, with one tax expert suggesting start-ups “sit out” until the recordkeeping requirements are made much clearer.
The R&D Tax Incentive allows companies to receive a refund for the cost of developing products and services.
Those with annual turnover of less than $20 million may be eligible for a 45% refundable credit, while companies with higher revenue could receive a 40% non-refundable credit.
In July, eligibility for the refundable credit was extended to include eligible foreign corporations. This was designed to drive increased foreign investment and innovation into Australia.
But it seems Australian companies are failing to take full advantage of the changes amid concerns about the stringent recordkeeping requirements involved in the application process.
According to Paul Brindle, managing director of the tax and accounting business at Thomson Reuters, companies are struggling to manage through the R&D incentive program.
Brindle told The Australian inefficient recordkeeping systems are deterring companies from lodging applications.
“The administrative burden of pulling the claims together is outweighing the benefits of making the claims,” he said.
“The take-up could be much greater if companies could better address the administrative burden.”
Damian Smyth, a tax principal at Swanson Reed, told StartupSmart the issue affects start-ups because they’re often unsure whether they’re meeting the requirements.
“Have we got our ducks in a row? This is the challenging point because the AAT (Administrative Appeals Tribunal) cases have [only] highlighted what’s not enough,” he says.
“There is a guideline, and AusIndustry has started issuing their requirements under the new system.
“They’ve only started handing out the first audits under those, so it’s going to be an interesting period as to how those go and what they’re going to consider sufficient.
“I’m aware of a few companies that say, ‘How about we sit out for a year?’ [I have suggested some companies] defer lodging a claim for a little bit until we can see what the requirements will be and whether we feel we meet them.”
Among the AAT cases Smyth refers to is one involving Queensland firm NaughtsnCrosses.
In that case, an Australian Taxation Office objection to the claim was upheld because the company did not have the appropriate documentation to support its application for the incentive.
The ATO’s move is part of a broader trend where the tax office is raising its expectations for recordkeeping by SMEs.