The ATO recently released four taxpayer alerts regarding the incorrect use of the R&D Tax Incentive program. TA 2017/2 and TA 2017/3 on 9 February 2017, and TA 2017/4 and TA 2017/5 on 20 February 2017.
BDO research & development partner Nicola Purser said while the alerts aim to warn those who seek to deliberately exploit the program, it may also inadvertently discourage legitimate R&D claims and may work against the federal government’s innovation agenda.
“The purpose of the most recent tax alerts was to discourage inaccurate claims and advice,” Ms Purser said.
“BDO is concerned that legitimate R&D claimants may defer their decision to participate in the scheme or be concerned that funding will be withdrawn, which may be a vital support mechanism for future R&D activity.”
Ms Purser said that some of the issues raised by the alerts regarding the eligibility of activities are inconsistent with pre-existing Findings that are binding on the Commissioner of Taxation.
On 24 February 2017, the ATO released TA 2017/5A - Addendum, making amendments to TA 2017/5 which focused on software development R&D.
“The ATO quietly released an amendment on 24 February to Tax Alert TA 2017/5, relating to software development R&D that has received significant coverage in the media,” Ms Purser said.
“The addendum (TA 2017/5A) demonstrates that there was clearly some inconsistencies with the ATO/AusIndustry’s interpretation of the law relating to software R&D activity.”
Ms Purser said that the changes made in TA 2017/5A directly relate to the pre-existing Findings that were inconsistent with the original alert.
“The addendum has very carefully reworded a large section of the Tax Alert around ‘routine testing’ in software development. It is now much fairer, and more closely aligned with the law,” Ms Purser said.
“The taxpayer alerts, and this addendum, could be confusing for business when the government is pushing the start-up/innovation agenda.”