TAX: Claiming the Research and Development Tax Incentive for agricultural activities

This Alert has been jointly developed by the Australian Taxation Office (ATO) and Department of Industry, Innovation and Science.

The Research and Development (R&D) Tax Incentive is jointly administered by Innovation and Science Australia (supported by AusIndustry within the Department of Industry, Innovation and Science) and the ATO.

Description

The ATO and AusIndustry are reviewing the arrangements of entities that are claiming the R&D Tax Incentive in respect of agricultural activities where some (or all) of the expenditure incurred is on activities which are not eligible R&D activities.

In Taxpayer Alert TA 2015/3 we highlighted our concern with entities involved in broadacre grain farming. We are now concerned that other entities engaged in agricultural activities, such as those operating orchards, vineyards, olive groves, forestry operations and fibre growing businesses, may be inappropriately claiming the R&D Tax Incentive under similar circumstances.

These types of arrangements exhibit some or all of the following features:

  • An agricultural business is being carried on, often by an entity that is not eligible for the R&D Incentive, for example a family trust.
  • The operators of the agricultural business are approached by a promoter/R&D consultant advising that the farming activities that are being carried on are eligible for the R&D Tax Incentive.
  • Where necessary, a new special purpose R&D company may be incorporated in order that the activities are conducted by an entity that is able to claim the R&D tax offset.
  • A company registers one or more activities for the R&D Tax Incentive.
  • The registered activities involve the application of farm products or practices across all or a significant part of a farm or farms.
  • Some or all of the registered activities have the character of ordinary farming activities whose main purpose is the production of crops.
  • The company claims the R&D Tax Incentive for expenditure that is not on eligible R&D activities.

More information:  https://www.ato.gov.au/law/view/document?LocID=%22TPA%2FTA20174%2FNAT%2FATO%22&PiT=99991231235958

Here is a checklist for claiming the R&D Tax Incentive:  https://www.ato.gov.au/business/research-and-development-tax-incentive/checklist-for-claiming-the-r-d-tax-incentive/

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