Latest news and guidance for R&D tax planning 2022

More streamlined access to the R&D Tax Incentive Customer Portal

It looks like the Australian Government has listened to people’s concerns about the difficulties of gaining access to the new online R&D Tax Incentive Portal. This remains a mandatory requirement for companies that want to access the R&D Tax Incentive (RDTI) Program.

Starting from January 2022, phone-based verification is no longer required and the process can now be fully completed online. You will need to ensure you have a personal myGovID with ‘strong’ identity strength, and can link it to your business via the ATO’s Relationship Authorisation Manager (RAM) system.

If you would like to grant your nominated R&D Tax Agent authority to collaborate in completing your RDTI registration, this can also be easily done via the portal.

It’s important to note that the program now includes some more detailed questions about your R&D activities than in previous years. These include:

• Clearly describing both your experimental methodologies and results evaluation processes
• More detailed descriptions of how your supporting R&D activities support your core R&D activities
• A breakdown of registered expenditure for each registered Core and Supporting Activity
• A description of what evidence the company has kept about its R&D, with samples of this evidence able to be shown at AusIndustry’s request. This includes evidence to show that you couldn’t predict the outcome of your core activity/activities in advance and needed to conduct a systematic progression of work.

Guidance notes on the new requirements are also available on the AusIndustry website.

• Customer Portal: https://incentives.business.gov.au/
• AusIndustry: https://business.gov.au/grants-and-programs/research-and-development-tax-incentive

Lodge early to avoid compliance headaches

AusIndustry announced in December 2021 that the previous three to 10 working day turnaround on approving newly lodged R&D Tax registrations is no longer applicable and that the official maximum processing time allowed is now 40 working days.

While it is expected that most applications will be done faster, the implication is that in order to comply with company Income Tax Return lodgement deadlines, companies need to be aware of the new extended approval potential of R&D registrations.

For example, if your company has a tax return lodgement deadline of 10 May (which standard for small companies), waiting for R&D Registration approval can cause compliance headaches if your registration isn’t lodged well in advance.

New rates of return for the R&D Tax Incentive

The FY 21/22 claim year will see further reductions in company tax rates, and in some cases an increase in the actual rate of return under the R&D Tax Incentive. The most important changes include:

Annual revenue <$20m:

Company Tax Rate reduces from 26% to 25% with a Refundable Tax Benefit of 43.5% if matched by tax losses, or 18.5% when trading in profit (increased from 17.5%).

Annual revenue $20m-$50m:

Company Tax Rate reduces from 26% to 25% with a new 2-tier Refundable Tax Benefit of:

1. 8.5% on eligible R&D expenditure which accounts for up to 2% of total company expenses
2. An additional 16.5% on eligible R&D expenditure exceeding the 2% baseline.

Annual revenue >$50m:

Company Tax Rate remains at 30%, but with the two-tier Refundable Tax Benefit now applying as described above.

Contact us today if you require assistance to prepare your 2022 R&D registration application. If you can provide sufficient detail about your R&D activities and costs, we can help you to lodge as early as the first week of July for a quick refund.

Claiming payments between associates

This is an important but sometimes misunderstood aspect of claiming R&D expenditure. If you are claiming costs of work undertaken by associate entities, it must be both invoiced by the associate and paid by you before the end of the financial year.

Examples of what would be considered payments to associates include:

• A consulting invoice from a majority shareholder
• Fees charged from an associated business entity for R&D services.

It can also include making a constructive payment where you apply/deal with the amount on their behalf, or (as directed by them) to pay off other creditors of the R&D company.

If you incur R&D expenditure from associates that is not paid by the end of the financial year, you are still able to carry forward and claim the amount in subsequent years, following payment.

JobKeeper payments for FY21 claims

Before the JobKeeper scheme wrapped up in March 2021 it was a lifeline for many businesses impacted by COVID-19. If you received JobKeeper during FY 20/21 and plan to make an R&D claim for that year, the ATO has released a Taxation Determination (TD 2020/21) which outlines the treatment of the JobKeeper payments with regards to RDTI wages claims.

It basically means that any component of wages supported by JobKeeper payments is not considered to be “at risk” spending – a prerequisite for eligible R&D expenditure – and therefore cannot be claimed as part of a company’s R&D expenses.

Should you require any assistance with the relevant adjustments, please contact us.

Focus on compliant record keeping for RDTI claims

The R&D Tax Incentive is a self-assessment program, such that any company claiming the incentive is expected to maintain contemporaneous records that support the eligibility of their R&D activities and expenditure.

This supporting evidence is expected to be a significant focus of compliance over the coming months, and includes the following:

• How the company assessed that the knowledge sought to be generated was new and unable to be determined in advance, such as through a standard engineering process
• Technical records that describe the iterations of experimental activities undertaken, including variables, performance benchmarks and observations
• Records substantiating R&D expenditure, such as timesheets and invoices in addition to R&D-specific records, including those that show you correctly apportioned costs between eligible R&D and non-eligible activities.

If you require advice or support to establish better record-keeping practices, please contact us for assistance.

References:

• Australian Government: https://www.business.gov.au/grants-and-programs/research-and-development-tax-incentive/how-we-check-compliance#providing-evidence
• Australian Tax Office: https://www.ato.gov.au/Business/Research-and-development-tax-incentive/Checklist-for-claiming-the-R-D-Tax-Incentive/

Advanced and Overseas Findings applications due 30 June

The 21/22 EOFY (midnight 30 June 2022) is quickly approaching, which is also the deadline for Advanced or Overseas findings covering R&D activities that occurred in the FY22 financial year.

Obtaining a positive Advanced or Overseas Finding outcome from AusIndustry does not guarantee that all the costs you wish to claim are 100% eligible, unless you also obtain an ATO private ruling. This has caught out some claimants – as well as the fact that Advanced or Overseas findings often take a significant amount of time and preparation to complete.

If you require expert assistance to prepare your Advanced or Overseas Finding application, please contact us.

References:

• Australian Government: https://www.business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-advance-finding
• Australian Government: https://www.business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-overseas-finding

New clinical trials determination

On 20 January 2022, the Federal Government released for consultation the draft Industry Research and Development (clinical trials, Phase 0, I, II, III for an unapproved therapeutic good) Determination 2021. It intends to provide businesses with better certainty that investment in clinical trials will be eligible for the RDTI by clarifying the conditions under which clinical trials will be accepted to be “core R&D activities” by Industry Innovation and Science Australia (IISA).

The Determination precludes certain activities from falling within its scope, such as clinical trials of generic products or “phase IV” clinical trials. Submissions, responses and comments on the draft Determination are due by 17 February 2022.

This is the first draft Determination or the R&D Tax Incentive program, and AusIndustry has indicated that other sectors may follow with their own Determinations. Watch this space!

We can help

For assistance with your next R&D Taxation claim, or with any R&D questions whatsoever, contact your local Bentleys advisor.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.