R&D tax incentive: 2024 round-up

13 December 2024

In brief

As we near the end of the 2024, we look back on what has been an eventful year for the R&D tax incentive. The year has seen a considerable volume of guidance issued or re-organised by both regulators, an AAT decision, new finding application forms and the first publication of the R&D transparency reports, among other things.

In detail

New and updated guidance

AusIndustry and the ATO have both been active in updating and re-organising existing guidance and content, creating new guidance, and running webinars and other information sessions. Guidance continues to emphasise the importance of good record keeping, including noting that poor record keeping delays review processes when claimants are subject to review. The main R&D tax incentive pages for AusIndustry and the ATO are here and here.

AusIndustry released substantial updates to two of its most important guidance documents: the Guide to Interpretation and Software-related activities and R&D Tax Incentive. Our analysis of the key elements updated can be found here. AusIndustry also published new hypothetical case studies to explain further the application of the guidance and legislation – Far Side and Machine Learning – as well as plenty of ‘customer stories’ to show how companies are benefiting from the program.

To help companies understand and use the R&D tax incentive clinical trials determination – the first and, thus far, only R&D tax incentive determination – AusIndustry issued brief and useful guidance explaining the text claimants should enter in their activity registration application forms. This can be found here.

New finding application forms

AusIndustry issued new finding application forms, to use for income years commencing on or after 1 July 2024. The new forms are more closely aligned with the annual R&D activity registration application form and instruct applicants to upload certain supporting documentation. Around 195 companies applied for an advance or overseas finding in the year ended 30 June 2024.

The first transparency report

Arising from reforms to the R&D tax incentive program announced as part of the 2020-21 Budget, legislation was passed in 2020 requiring the ATO to publish certain information about entities claiming the R&D tax incentive. The ATO released the first transparency report in October, publishing the following information about R&D claimants:

• Name and ABN or ACN
• Total R&D expenditure and adjusted total R&D expenditure
• Income year.

ATO and AusIndustry compliance and audit activity

In October 2023, the ATO and AusIndustry commenced a program of joint reviews of a randomly selected cohort of R&D tax incentive claimants. Those joint reviews continued into 2024, and late in the financial year, the regulators provided a brief progress update, which indicated the reviews were expected to continue past 30 June 2024.

Both AusIndustry and the ATO also continued their usual compliance review and audit programs, and in June, AusIndustry released observations from its recent compliance activities, available here. These observations reiterate the importance of retaining information and evidence used for self-assessment, and highlighted the need to provide specific, rather than broad or general information, in R&D application forms. 

Governance

To help applicants and their advisors know what to expect when dealing with the regulators, the ATO and AusIndustry created the R&D tax incentive program charter, available here. The R&D tax incentive program charter is intended to complement two other charters (the ATO charter and the Department of Industry, Science and Resources customer service charter) and the R&D tax incentive service commitment.

AusIndustry also re-published on its website its standard processing times for activity registration applications (excluding finding applications).

On 14 October 2024, the new federal administrative review body – the Administrative Review Tribunal (ART) – commenced operations. The ART has the power to review decisions made under 400 Commonwealth laws (approximately), including taxation laws. It is now the body responsible for external review of R&D tax incentive decisions made by the Australian Government, replacing the Administrative Appeals Tribunal (AAT).

AAT decision

In the matter of GQHC and Commissioner of Taxation, the AAT found that in circumstances where no finding has been made by Industry Innovation and Science Australia as to whether an R&D entity’s registered activities are core or supporting R&D activities, the Commissioner of Taxation has the power to assess or make decisions as to whether that entity’s registered activities are eligible R&D activities. Both regulators stated that the decision did not change how they would administer the R&D tax incentive, and the ATO subsequently issued a decision impact statement.

Final reminders

As we approach the end of 2024, we remind R&D entities with a 31 December income year end, that incur R&D expenditure to associates, that such expenditure must also be paid by 31 December in order to obtain an R&D tax offset for it. 

If required, finding applications for the year ending 31 December 2024 must be lodged by 31 December 2024.

Should you wish to discuss any of the key R&D tax incentive events of 2024, or have any other questions about the R&D tax incentive, we encourage you to contact our R&D and Government Incentives team.