The R&D Tax Concession is an Australian Government program to increase business investment in research and development (R&D) undertaken in Australia. The aim is to assist in sustaining innovative, competitive and exportorientated Australian industries.
The R&D Tax Concession is administered by Innovation Australia, assisted by AusIndustry, and the Australian Taxation Office (ATO). It operates on a self-assessment basis. Claimants are responsible for ensuring they meet the key eligibility criteria of the program in relation to claimed R&D activities and related expenditure.
Under this joint administration, Innovation Australia has responsibility for determining whether activities are eligible activities. The ATO is responsible for determining the eligibility of expenditure incurred and claimed under the R&D Tax Concession.
On behalf of Innovation Australia, AusIndustry and the ATO work closely to maintain the integrity of the program by providing relevant guidance and monitoring compliance. This includes the ongoing provision of guidance and education to companies and extends to sharing information permitted by secrecy and privacy provisions.
The purpose of the AusIndustry compliance model is to provide a framework to assure the ongoing integrity of the program.
It aims to ensure that taxpayers obtain the benefits under the program to which they are entitled and that they receive those benefits with minimal compliance burden.
The framework includes the monitoring of trends and behaviours in the registration of R&D activities. This is done to better understand industry trends, identify issues or gaps that inform the need for additional guidance, and ultimately leads to the increased integrity of the program.
This brochure provides a simple overview of the rationale and approach taken by AusIndustry to managing compliance. The goal is to assist companies to adopt compliance ready practices in relation to their R&D management and record-keeping practices and, at the same time, to help companies better understand compliance activities that may arise. This brochure explains the nature of various compliance activities that AusIndustry typically undertakes.
The perceived risks of non-compliance can change. While there is a framework that guides AusIndustry's compliance work, it is important to understand that the emphasis and effort are also guided by the identification of emergent risks and appropriate mitigation strategies. AusIndustry also undertakes distinct risk management and compliance activities jointly with the ATO.
AusIndustry is committed to customer service and minimising the compliance burden faced by companies undertaking R&D in Australia. Invariably the compliance burden is also dependent upon the quality and integrity of the business systems that companies implement to underpin their compliance requirements. AusIndustry and the ATO provide education and guidance material that seeks to assist companies to better understand what is required of them in meeting their obligations under the program.
AusIndustry's compliance framework activities are undertaken in accordance with the following general principles:
- transparency: companies have a clear understanding of AusIndustry's compliance and decision-making processes and how they apply to their circumstances;
- consistency: program legislation is applied and interpreted consistently through sound decision making, internal quality assurance, staff training, and knowledge management;
- timeliness: compliance activities are undertaken in a timely fashion;
- continuity of management: continuity in the management of companies through their 'compliance journey' until a result is reached; and
- working cooperatively with the ATO and other stakeholders so as to minimise the impact on taxpayers.
Innovation Australia has established the Tax Concession Committee (TCC) to manage its role in administering the R&D Tax Concession. The role of the TCC is to make decisions on the statutory assessment of the more material cases under the program and provide in-principle guidance to AusIndustry in its interpretation of the eligibility of claimed activities.
Innovation Australia has also delegated authority to AusIndustry to undertake a range of administrative functions including routine statutory assessment decisions. With the exception of decisions relating to late registration, all other appeal decisions are made by the TCC.
One of the key determinants of AusIndustry's compliance approach is the broad categorisation of companies according to the material value of registered R&D activities in any one income year. This means that:
- larger registrations are managed by AusIndustry's National Office; and
- smaller registrations are primarily managed by AusIndustry's State and Territory Offices.
Good guidance leads to ease of compliance for companies undertaking R&D and registering under the program. An effective strategy begins with appropriate education directed at empowering companies to self assess their eligibility under the legislative criteria.
AusIndustry invests considerable effort in ensuring that new and existing companies have sufficient information to understand all of the benefits, requirements and obligations arising from the program.
AusIndustry collects and monitors data from its registration and compliance activities to identify issues and trends at the company, sectoral and regional level that can be addressed through the provision of additional guidance.
AusIndustry education and guidance materials available to assist companies include:
- fact and information sheets;
- a program overview; and
- the Guide to the R&D Tax Concession.
Information channels for providing guidance include:
- the AusIndustry Hotline;
- the AusIndustry website; and
- AusIndustry Customer Service Managers (CSMs) in State and Territory Offices.
AusIndustry runs seminars to explain the benefits of the program to industry and highlight key administrative requirements for companies to be compliant.
All companies currently registered with AusIndustry receive a regular electronic newsletter, The R&D Incentive Bulletin, which keeps them abreast of trends and developments in relation to the program's administration and articles on innovation more widely.
In addition AusIndustry, together with the ATO, maintains a close dialogue with key industry stakeholders through workshops and consultative forums.
To be eligible for the R&D Tax Concession companies are required to register annually using the approved application form. This form is available on the AusIndustry website and can be lodged either by post or online. The registration form allows companies to self-assess and describe eligible activities. Importantly the registration application must contain sufficient information to allow AusIndustry to undertake a basic assessment of a company's eligibility.
Providing a meaningful and insightful description of key activities that were carried out in experiments can greatly assist companies to either avoid or reduce later compliance activity.
Registration documentation is central to AusIndustry's compliance assurance work as it is used for both:
- identifying industry trends that might inform the emphasis of AusIndustry's education and compliance activities; and
- case selection of companies for compliance assurance activities.
AusIndustry is working with the ATO to enhance the pre-registration evaluation of applications in line with the timely provision of benefits. This work is also directed at better managing any potential fraud and any other acute risks of non-compliance.
AusIndustry regularly selects companies for compliance reviews based on perceived levels of the risk of noncompliance with legislation. Typically this is a function of:
- the scale and complexity of R&D activities being registered and the level of expenditure being claimed as an offset or otherwise; and
- any other potential indicators of non-compliant behaviour. These can include industry and sectoral intelligence, prior registration information and trends, compliance history, and particular financial ratios (for example the ratios of R&D expenditure to turnover and R&D spend to total project spend).
AusIndustry then systematically examines registered R&D activities of the selected companies.
Companies with smaller registrations are typically managed through an escalating process of compliance assurance activities called the 'Compliance Continuum'.
Larger and more complex R&D registrations are typically managed through an Active Case Management process.
The Compliance Continuum& is a four-tier, escalating process of compliance involving the progressive evaluation of registered R&D activities.
The stages in this process of escalation include:
- Registration Profile Review;
- Compliance Desk Review;
- R&D Activity Review; and
- R&D Eligibility Statutory Assessment.
Compliance activity ceases when all identified issues are
resolved.
The Registration Profile Review is a desk-based process that involves a range of activities. These may include:
- an evaluation of the company's R&D activities against program requirements and tests;
- a comparison of the technology the company is involved with and what is perceived to be the state of the art in the particular industry sector at the time of the registration;
- local knowledge and intelligence of the AusIndustry State or Territory Offices;
- information obtained from the ATO relevant to the determination of the eligibility of the company's activities; »» analysis (often web-based) to obtain background information on the company's activities and the industry sector it operates in;
- an analysis of the company's current and previous registration applications and any previous compliance activity; and
- an analysis of the company's history with AusIndustry (for example, other program activity).
The outcome of a Registration Profile Review will be to either:
- finalise the Registration Profile Review with no further action; or
- escalate to a Compliance Desk Review if there are issues or insufficient information in the registration application.
During a Compliance Desk Review further information is requested from the company to address the particular issues identified in the Registration Profile Review.
Where the information requested is provided and resolves outstanding concerns then the company profile will be updated, compliance processes will cease and the company will be advised accordingly. Otherwise, the case may be escalated to an R&D Activity Review.
The R&D Activity Review will generally include a site visit to further investigate outstanding concerns around eligibility of the registered activities. The company (and its registered Tax Agent) will be advised in advance of the particular issues that AusIndustry would like to resolve at the site visit.
Should the R&D Activity Review resolve all outstanding issues, the compliance process will stop and the company will be advised accordingly.
Otherwise the case may be escalated to a R&D Eligibility Statutory Assessment. However, prior to escalating to a R&D Eligibility Statutory Assessment, AusIndustry will again seek to work with the company to mitigate the identified risks by providing the company with the opportunity to amend its registration (and tax claim) to remove the activities in question.
An R&D Eligibility Statutory Assessment is a formal examination as to whether the activities undertaken by a company are 'research and development activities' within the definition in section 73B(1) of the
Income Tax Assessment Act 1936.
An assessment will be undertaken by AusIndustry and may lead to a report being prepared for consideration by the TCC or another delegate of Innovation Australia. This will be for decision under section 39L of the Industry Research and Development Act 1986 (the IR&D Act) as to whether the registered activities have been demonstrated to be 'research and development activities'.
During an R&D Eligibility Statutory Assessment, a company can expect to receive requests for detailed information about its claimed activities. AusIndustry is also likely to undertake a site visit(s) and may engage an independent technical expert to comment on the novelty and technical risks involved. At the end of the assessment, AusIndustry will prepare a report for consideration by a delegate of Innovation Australia for a decision to be made.
The outcome of an R&D Eligibility Statutory Assessment is a certificate issued by Innovation Australia which is binding on the Commissioner of Taxation. A company is not entitled to claim a tax concession or offset under the R&D Tax Concession in respect of activities listed in the certificate as not being 'research and development activities'.
If dissatisfied with the outcome of a statutory assessment, a company has the right to request an internal review of the decision under section 39S of the IR&D Act within 21 days of receiving notice of the section 39L decision.
Internal review involves a fresh assessment of all the information provided during the original assessment and provides an opportunity for companies to provide further information. The internal review results in a decision to confirm or vary the original decision.
If a company is dissatisfied with the internal review decision, it has the option of applying to the Administrative Appeals Tribunal (AAT) for the review of certain decisions by Innovation Australia under section 39T of the IR&D Act.
AusIndustry undertakes compliance assurance in relation to large claimants through a risk review process called 'Active Case Management'. This work, which is undertaken by AusIndustry's National Office team, involves the following:
- early engagement with high revenue-risk companies involving review processes similar to those of the Compliance Continuum;
- meeting with companies and/or their registered tax agents to develop a clear understanding of the activities being claimed under the program;
- risk assessment based on available information;
- risk identification and mitigation to resolve identified issues where possible (for example, confirmation of eligibility, amendment of claims);
- where compliance issues remain, escalation to an R&D Eligibility Statutory Assessment; and
- where appropriate, managing compliance activities jointly with the ATO.
The ATO may identify concerns about the eligibility of R&D activities if they review expenditure claims in company tax returns. The ATO has the ability to refer such cases to AusIndustry for compliance activity. Similarly AusIndustry has the ability to identify issues that may be of concern to the ATO.
Information on the ATO's approach to compliance is available from its website www.ato.gov.au.
Companies can work with AusIndustry in compliance activities by ensuring that their records and business processes are in effect 'compliance ready'. For example, it is recommended that companies and their Tax Agents take the time to:
- be aware of their obligations under the program;
- become familiar with AusIndustry's compliance review processes and what might be required;
- describe activities during registration in an appropriate manner that provides a meaningful overview and also captures the significant points of the experiments and other activities (for example, what was done that was different). In large matters, short examples can provide enormous value;
- maintain good records that will assist to explain the nature and eligibility of claimed activities (for example R&D Plans, project plans and milestone reports, documentation on prototypes and project risk management plans);
- work cooperatively with Innovation Australia, AusIndustry and the ATO; and
- respond to information requests in a timely manner and in the format requested.
Companies can ensure they are aware of their obligations under the R&D Tax Concession by referring to education and guidance materials, or seeking advice from AusIndustry. A list of key documents is provided in the Appendix.
AusIndustry is a specialist program delivery division within the Department of Industry, Innovation, Science, Research and Tertiary Education.
AusIndustry delivers many business programs with a total value of about $2 billion each year. AusIndustry has customer service managers in more than 20 offices across Australia, including 15 regional offices.
AusIndustry has a long-standing relationship with Australian business with more than 15 years' experience in dealing with business and business issues. We value that trust.
We are a key source of information and referral over a range of business areas. We work across all levels of government and reach even the most remote areas of Australia.
For further information on the R&D Tax Concession please contact the AusIndustry Hotline on 13 28 46, email hotline@ausindustry.gov.au or visit www.ausindustry.gov.au
Key documents
The table below lists the key documents governing the R&D Tax Concession.
| Industry Research and Development Act 1986 |
Legislation governing the program, in particular Part IIIA |
ComLaw website www.comlaw.gov.au |
| Income Tax Assessment Act 1936 |
Legislation governing the program, in particular sections 73B to 73Z |
ComLaw website www.comlaw.gov.au |
| Guide to the R&D Tax Concession |
Comprehensive source of information on the R&D Tax Concession designed to provide companies with sufficient information to undertake self assessment. It is produced jointly by AusIndustry and the ATO.
|
AusIndustry website - Guide to the R&D Tax Concession |
| Guideline for Overseas Research and Development Activities |
Detailed information on applying for a provisional certificate for overseas R&D activities |
AusIndustry website - Guideline for Overseas Research and Development Activities |
| Guideline for Research and Development Plans 2001 |
Detailed information on the requirements of R&D plans. Includes readers' notes and suggested formats for plans. |
AusIndustry website - Guideline for Research and Development Plans 2001 |
| Application forms for registration of R&D activities |
Application forms for companies to apply for registration under the R&D Tax Concession |
AusIndustry website - Application forms for registration of R&D activities |
| R&D Tax Concession information sheets |
General information for companies on the R&D Tax Concession. |
AusIndustry website - R&D Tax Concession information sheets |
Note: There may be links contained within this document which will transfer you from the AusIndustry website. AusIndustry does not have responsibility for these external websites nor does linking constitute any form of endorsement.
You will need Adobe Acrobat Reader to view PDF files. To access functionality in PDF 'smart forms', including some application forms you will need at least Adobe Acrobat Reader 9.1 or above. You can download a free copy from the Adobe web site.
If you have any problems accessing an attached file, please contact the AusIndustry Hotline on 13 28 46 or hotline@ausindustry.gov.au.