Fintech Forum Melbourne 21 June 2017 Brett Challans Director, - - PowerPoint PPT Presentation

Fintech Forum Melbourne

21 June 2017

Brett Challans Director, Innovations Tax Australian Taxation Office (08) 7422 2382

Administration of Innovation Programmes

• AusIndustry and the Australian Taxation Office

have joint administration of:

• R&D Tax Incentive Programme
• VCLPs and ESVCLPs
• The ATO has sole responsibility for the

administration of the ESIC Programme

Research & Development

Co-Administration of the R&D Programme

• For the R&D Tax Incentive
• AusIndustry has responsibility for R&D activities
• The Australian Taxation Office has responsibility

for the expenditure on the R&D activities

Joint R&D Compliance Strategy

• Joint Risk Approach
• Fraud
• Ordinary business activities versus eligible R&D

activities

• Software Development
• Agricultural claims
• Mining
• Building exemption claims (s355-225 of the ITAA 1997)
• Consultants

Joint Compliance Strategy cont…

• Joint education
• Co-branded publications
• Joint compliance activities

Joint Taxpayer Alerts

• TA 2015/3 Accessing the R&D Tax Incentive for ineligible

broadacre farming activities

• TA 2017/2 Claiming the Research and Development Tax Incentive

for construction activities

• TA 2017/3 Claiming the Research and Development Tax Incentive

for ordinary business activities

• TA 2017/4 Claiming the Research and Development Tax Incentive

for agricultural activities

• TA 2017/5 Claiming the Research and Development Tax Incentive

for software development activities

The Review of the R&D Tax Incentive – 3Fs Review

• Review Panel – Mr Bill Ferris AO (Chair), Dr Alan Finkel

AO, Mr John Fraser

• Report provided to Government in April 2016 and

released for public consultation on 28 September 2016

• The Government is yet to respond to the Report
• Review highlights

– Largest component of the Australian government support for innovation – Significant growth is placing increasing strain on the administrative and compliance model for the programme – The programme should be underpinned by strong integrity measures to preserve the credibility of the tax system

Summary All Years

1,000,000,000 2,000,000,000 3,000,000,000 4,000,000,000 5,000,000,000 6,000,000,000 7,000,000,000

2012 2013 2014 2015 2016 Refundable R&D amount Non-Refundable R&D amount

R&D Claims by State

500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000 3,000,000,000 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 ACT NSW NT QLD SA TAS VIC WA

Refundable R&D amount Non-Refundable R&D amount

R&D Expenditure

• Refundable R&D Tax Offset – 43.5% of R&D

expenditure where aggregated turnover is less than $20m

• Non-refundable R&D Tax Offset – 38.5% of R&D

expenditure where aggregated turnover is greater than $20m

• What is aggregated turnover?

– Connected Entities – Affiliates

R&D Expenditure – Key Points

• Record Keeping

– Ozone Manufacturing Pty Ltd v FC of T [2013] AATA 420

• Expenditure to Specific Activities

– Tier Toys Limited v FC of T [2014] AATA 156

• Methodology for Calculating Percentage of

Total Costs

R&D Expenditure – Key Points cont…

• Payments to Associates

– Must be paid to be included as a notional R&D deduction

• Ordinary business activities (also referred to as business

as usual)

• Excluded expenditure
• Adjustments

– Feedstock adjustments – Clawback adjustments

Start-ups undertaking R&D

• Common mistakes for startups

–Formation expenses claimed as R&D expenditure –The wrong entity is undertaking the R&D activity –The entity undertaking and registering the R&D activities must be a company

Early Stage Innovation Companies

Tax Incentives for investors

• Newly issued shares on or after 1 July 2016
• 20% non-refundable carry-forward tax offset
• Capital gains tax exemption for investors
• New reporting obligation by ESIC on share

issues

Qualifying as an early stage innovation company – company requirements

• Incorporated or registered in the Australian Business

Register

• Total expenses of $1 million or less in the previous

income year

• Assessable income of $200,000 or less in the

previous income year

• Not listed on any stock exchange

Qualifying as an early stage innovation company – 2 tests

• A company to qualify as an ESIC must satisfy 1
• f 2 tests
• Principle-Based Test – s360-40 ITAA 1997
• 5 criteria
• 100 Points Test – s360-45 ITAA 1997
• 8 criteria

Qualifying as an early stage innovation company – Principle-Based Test

1. The company must be genuinely focused on developing one or more new or significantly improved innovations for commercialisation 2. The business relating to that innovation must have a high growth potential 3. The company must demonstrate that it has the potential to be able to successfully scale up that business 4. The company must demonstrate that it has the potential to be able to address a broader than local market, including global markets, through that business. 5. The company must demonstrate that it has the potential to be able to have competitive advantages for that business.

Qualifying as an early stage innovation company – 100 Points Test

• A company must accrue at least 100 points
• Points range from 75 points down to 25 points

Private Ruling Applications

• Private Ruling applications
• Rulings on Principle Based Test not the 100 Point

Test

• Private Ruling applications issues
• The structure
• Establishing that the innovation is new or

significantly improved

Venture Capital Limited Partnerships (VCLPs) and Early Stage Venture Capital Limited Partnerships (ESVCLPs)

VCLPs and ESVCLPs

• Co-administer with AusIndustry
• Both VCLPs and ESVLPs aim to increase capital

investment in Australia by providing beneficial tax treatment to eligible and local foreign investors.

• From 1 July 2016, further tax incentives may

apply for investments in an ESVCLP

Accessing Losses

Accessing Losses

NISA Announcement

• ‘same business test’ will be relaxed
• ‘predominantly similar business test’

introduced allowing access to losses, where: –Similar assets used –Income generated from similar sources

General Information

Good Tax Governance

• 7 principles of good tax governance

–Professional and productive working relationship –Accountable management & oversight –Recognise tax risks –Seek advice –Integrity in reporting –Timely lodgements and payments –Ethical and responsible behaviour

Getting Help

• Seeking advice from the ATO
• Early engagement
• www.ato.gov.au/business/research-and-

development-tax-incentive/

• www.ato.gov.au/general/new-legislation/in-

detail/new-tax-incentives-for-early-stage- investors/

Further Information

• Australian Taxation Office

– 13 28 66 – www.ato.gov.au/randdtaxincentive

• AusIndustry

– 13 28 46 – www.business.gov.au