The R&D Tax Incentive intends to encourage more Australian companies to engage in R&D, by providing a targeted tax offset. It is a self-assessment programme.
For the last six to 18 months, and particularly coinciding with the release of two taxpayer alerts which warn against deliberate misuse of the incentive, PwC partner Aaron LePoidevin has found it is taking months for refunds to be issued, where historically for a self-assessment regime he expects a time frame of a few weeks.
There has been a “very noticeable” increase in the number of refunds being held, which, based on his own discussions, Mr LePoidevin believes is being experienced outside of PwC clients also.
Mr LePoidevin said it seems the ATO is performing upfront assessments before releasing the refunds, despite the “vast majority” of claimants doing the right thing.
While this approach likely comes from a “genuine place” of wanting to stamp out exploitation of the incentive, Mr LePoidevin believes SMEs are becoming the collateral damage in this approach.
“These are generally smaller business and the cash flow is important to them. So they might still get the refund that they are entitled to, but it’ll take them three or four months,” he said.
“If you’re a small business or a startup, that can be a long time, especially if you’re expecting to receive it in four weeks, which was the old normal.”
In response, the ATO said it reviews a number of R&D claims prior to issuing a refund, which involves a range of compliance checks.
“Generally, R&D tax incentive claims are complex and require a high level of scrutiny. When reviewing claims we need to balance the need to undertake integrity checks whilst limiting the timeframe that the companies are without their refund,” a spokesperson told Accountants Daily.
“The duration that we can retain a refund to review is governed by legislation and internal guidance material. We aim to complete our review process as quickly as possible, yet sometimes there are unavoidable delays as we ensure that claims are verified. Where there are significant delays we endeavour to contact the taxpayer to let them know,” the spokesperson said.
Mr LePoidevin would like to see the ATO commit to turnaround times, just as taxpayers and companies are expected to.
“The ATO might ask a company to turn around a response within 28 days, perhaps they could commit to turning around their view on that in the same or a similar timeline,” he said.
Kris Gale, partner at Michael Johnson Associates, hasn’t seen evidence of major refund delays in the industry, and noted that the ATO does not have a set timeline that it is obliged to follow.
He did note, however, that there have been instances of the incentive being misused, which may be having a knock on effect and putting the regulators on alert.
“There’s been factors like poor quality service providers… that’s led to a cohort of claims that are badly made and badly priced. These things take a way to work through the system,” he said.
“I’ve seen clients with well made claims and and companies with claims that are fabricated all getting a hard time in the audit framework. [You might say] surely the audit framework should discriminate between well made claims and poor claims,” he said.
“I think we are into a phase now where the attitude of the regulators to compliance is one of heightened anxiety, and they’re giving companies a really difficult time in relation to that, but I think it’s around the fact that they’ve got an experience base now, and have seen people doing the wrong things with claims. There’s nothing specifically that has changed for them, because the law is unchanged.”
Are you thinking of expanding your offering into SMSFs to grow your client base? Become a pro at SMSF fundamentals and make your clients bulletproof with the SMSF Foundations course. Learn directly from Aaron Dunn from Smarter SMSF as he deep-dives into the fundamentals you need to know to successfully undertake your work as an SMSF practitioner. Earn up to 21 CPD hours! Learn more