Popular tax incentive on shaky ground, lawyer says

The R&D tax incentive has been under scrutiny after the ATO recently clamped down on claimants of the scheme, issuing a number of taxpayer alerts for potential misuse of the system.

Gilbert and Tobin partner Muhunthan Kanagaratnam said that the industry is expecting post-budget changes but are remaining cautious in the meantime.

“For small businesses, it is going to add to their uncertainty around claims. People will have to be careful about what they are claiming and making sure they are compliant in every aspect,” said Mr Kanagaratnam.

“In terms of the reporting, small businesses should be aware that the tax office is looking at the paper work and should be paying more attention to that as part of their R&D processes and if they do bring in an intensity test, then again there will be a bit more additional reporting around making sure the linkage between the level of expenditure and the frequency of expenditure around R&D is evident.

“It’s a bit of a wait and see to see where the government will move. They will do something, it’s just a question of when and how much.”

IPA’s senior tax adviser, Tony Greco, said the government’s promise to return the budget to surplus in 2021 would lead to a raft of “corner cutting” measures that would not cost them votes, leaving the R&D scheme open for tinkering. 

“My personal view is that if it can save them money and it is not going to cost them much votes or backlash, then they could potentially do it,” said Mr Greco.

“It comes down to Treasury and they are trying to pare back wherever they can so in that environment and if the R&D claims start pushing hard with the volume of dollars behind them [increasing], Treasury will react and reduce the costs going forward.”