Australia

Details

  • Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 29/11/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Kristina Kipper

Kristina Kipper
Director, Tax

+61 2 9335 7847

kkipper1@kpmg.com.au

R&D expenditure incurred? 

by Kristina Kipper, R&D Tax Specialist

The Australian Taxation Office (ATO) is paying increasing attention to the question of whether expenditure included in are Research and Development (R&D) claim has, in fact, been incurred. Its particular focus is on situations where the relevant amount is merely contingent and where the taxpayer may be entitled to a cash refund.

The recent decision by the Administrative Appeals Tribunal of Australia (AATA) in Vision Intelligence Pty Ltd v Commissioner of Taxation [2013] AATA 527 (Vision Intelligence) is one example of this scrutiny.

 

Vision Intelligence had claimed $990,724 of contracted expenditure in financial year (FY) 2009 under the former R&D tax concession, which qualified for the old R&D offset (entitlement to receive a cash refund). However, the Commissioner of Taxation asserted the expenditure was not incurred in FY2009.

 

In determining the issue, the AATA had regard to the following:

 

  • the agreement between the contractor and taxpayer required the taxpayer to authorise the work to proceed and the contractor to issue a progress payment claim, prior to any payment by the taxpayer
  • the invoice issued stated the work was to be undertaken from 1 June 2009 to 30 June 2010 and described the amount as the ‘estimated value’ only
  • virtually none of the invoiced amount was ever paid nor was any payment subsequently demanded


The AATA concluded that the expenditure was not an expense to which the taxpayer was definitely committed. Rather, the liability was at best contingent, pending, or expected.

 

The AATA therefore disallowed the R&D claim and also imposed a 25 percent penalty for failure by the taxpayer to take reasonable care.

 

This decision highlights the importance of reviewing contractual arrangements, particularly where the refundable R&D tax offset applies.

 

The focus on amounts giving rise to potential cash refunds is also reflected in the inclusion of specific provisions in the new R&D legislation regarding payments between associates.

 

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