AusIndustry has introduced a new compliance review framework based on the concept of a ‘compliance continuum’ for R&D Tax Claims. The new framework plans to sample around 15% of all R&D Tax applications received each year, with the objective that all applications will potentially be reviewed over a 5 year period.
This new framework includes a continuum that consists of four levels of review activities which will be undertaken by AusIndustry. The continuum cascades down, commencing with a registration review, where an unsatisfactory outcome at any level will trigger compliance at the next level. Broadly, those levels of compliance reviews include the following:
- Registration review – A registration review is a review ‘at the desk’ based on the information that has been provided in the application. There is no contact with the claimant at this stage.
- Desk Review – A desk review is a request of the customer to provide their R&D project plan and other requested data for review.
- Activity or Compliance Review – An activity review involves a visit to the company to discuss and work through any outstanding issues. If AusIndustry is unable to resolve any concerns at this stage, and the application is categorised as being high risk, the application may then proceed to a statutory assessment.
- Statutory Assessments – A statutory assessment involves an in-depth review of registered R&D activities. AusIndustry takes an evidence based approach to assessments that requires companies to substantiate their claims with contemporaneous records. AusIndustry also obtains the services of independent technical experts where necessary. An assessment report is prepared and a recommendation made to a delegate of Innovation Australia. The decision maker may determine that the activities are eligible, ineligible, or partially eligible (i.e. eligible for a certain period of time, or only to a certain extent). This decision is appealable and reflected in a binding certificate to the Commissioner of Taxation.
From the above review process it is easy to understand the importance of understanding the obligations imposed by the scheme and maintaining the required supporting documentation. In the event that your claim progresses to the statutory assessment stage, there is a higher likelihood that your claim could be reduced or cancelled. This could result in funds paid being refunded and/or penalties being imposed.
In 2010-11 AusIndustry will undertake registration reviews on approximately 1,200 of the 8,546 companies that submitted applications for the 2008-09 income year. In addition, compliance assessments of around 300 companies who indicated that they will undertake annual R&D worth more than $10m for the 2008-09 income year will be undertaken. The 1,200 companies (with R&D less than $10m) to undergo a registration review are selected based on a range of risk filters which search for and analyse specific information contained in the company’s registration form, past compliance activities data and information from the Australian Taxation Office. Some examples of those risk filters include:
- significant expenditure changes from year to year;
- R&D expenditure levels;
- specific keywords in activity/project descriptions;
- First year applicant / first year offset applicants;
- companies that have not undergone compliance checking for a given number of years; or
- negative outcomes from previous compliance activities.
Based on data to the end of November 2010, around 75% of registration reviews are progressing to the desk review level, and of those desk reviews, about 45% are progressing to activity reviews. Trend data for those claims progressing from activity reviews to statutory reviews is not yet sufficient to quote because not enough companies have progressed through the continuum to the statutory review level. This data should be available during the second half of the 2010-11 year. This data is not necessarily indicative of the longer term levels which are expected to show lower rates of progress through the various stages.
The government expects the number of claims lodged in 2010/11 will be around 10,000 with R&D expenditure exceeding $20b.