Australia

Details

  • Service: Tax, R&D Incentives
  • Industry: Industrial Manufacturing
  • Type: Regulatory update
  • Date: 13/11/2013

Tax Insights

KPMG's analysis of tax issues and developments.

James Edwards

James Edwards
Director, Tax

+61 8 9263 7216

jedwards1@kpmg.com.au

Ensuring your R&D Incentive claims survive ATO scrutiny 

by James Edwards, R&D Incentives Specialist

In its Manufacturing Industry Strategy 2013-2014, the Australian Taxation Office (ATO) has highlighted Research & Development (R&D) claims as one of its key risks for the industry. It will regularly review manufacturing companies’ R&D Tax Schedules to detect any emerging trends in R&D Tax Incentive claims within the industry.

In light of this increased focus on the industry, what should manufacturing companies be mindful of when compiling their R&D Tax Incentive claims?

  

Below are some of the key issues:

 

  • R&D projects undertaken solely in a production environment must have at least one experimental activity (core activity).
  • companies must apply the 'feedstock' provisions for any feedstock expenditure incurred on R&D activities where those activities produce either a marketable product or a product the company applies to its own use.
  • when supporting R&D activities are undertaken in a production environment, companies must consider whether these activities are undertaken for the dominant purpose of supporting the core R&D. Only those activities undertaken for the dominant purpose of the core R&D activities can be claimed.
  • all R&D activities and expenditure must be substantiated with sufficient contemporaneous documentation. This includes maintaining records of trials/experimentation undertaken to test hypotheses, results generated, analysis undertaken and any conclusions reached, as well as how relevant supporting activities meet the dominant purpose.
  • A recent Administrative Appeals Tribunal of Australia (AATA) case highlighted the need to ensure trial costs are substantiated, including maintaining timesheets for those involved in undertaking R&D activities in a production environment.

 

The increased focus on the manufacturing industry by the ATO means manufacturing companies claiming the R&D Tax Incentive should expect a review of their R&D claim. As such, companies should invest in good record keeping practices and ensure they have fully considered the above issues under the new R&D Tax Incentive.

 

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