R&D tax cuts will force clawbacks, ATO admits

Businesses accessing the R&D Tax Incentive (R&DTI) scheme before new legislation is finalised may have to make repayments, the Australian Taxation Office (ATO) has confirmed.

The confirmation comes just weeks before the anticipated report from the Senate Economics Legislation Committee inquiry into changes to the scheme, expected on August 24.

Originally, the committee was due to report in April, before the end of the financial year. But, the date was pushed back to August 7 because of the COVID-19 crisis, and then again by a further two weeks.

The proposed reforms would introduce a refund cap of $4 million, and create a tiered system for the incentive, calculating an ‘incremental intensity’ measure based on R&D expenditure as a percentage of total business expenses.

In June, the committee heard that the changes may be applied retrospectively, meaning businesses would have to revise their tax returns after the fact.

Now, the ATO has confirmed it will take action to recoup any funds correctly issued under the previous legislation that become incorrect under the new ones.

In a response to the committee’s questions on notice, ATO assistant commissioner Jade Hawkins sought to clarify her position on so-called ATO clawbacks, that would require recipients of the RDTI to make repayments.

In the ATO’s first appearance before the committee, Hawkins said she responded to a Senator’s question suggesting there would be no clawback, she says in the response.

“I would like to note for the record that I was referring to penalty and interest, not the actual R&DTI,” Hawkins wrote.

“This is because while the statement about no tax shortfall penalties and interest on a shortfall being remitted to nil is correct, there may be occasions where an amount would have to be ‘clawed back’.”

“That circumstance would be where a company received a larger tax off-set under the old legislation than the new legislation, the difference or overpayment would need to be repaid by the company. However, similarly, no penalties or interest would be applicable.”

The confirmation adds yet more uncertainty for innovative businesses in already tricky economic times.

The COVID-19 crisis has meant cashflow is more important than ever. Typically, startups and other innovative businesses would apply for the RDTI early, in order

According to a report from InnvoationAus, more than 25% of companies that made an R&DTI claim in the 2018-19 financial year did so in the first quarter.

While some businesses may be holding back on their claims this year, for the time being, a repeat of that trend could see Aussie businesses making repayments when they can seldom afford to do so.

Will your business be affected by this? Let us know.

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