Australian Tax Office


How to determine whether you qualify for the R&D Tax Incentive

2:13AM | Monday, 10 February

My business is innovative and experimenting with new ideas. How do I determine whether we qualify for the R&D Tax Incentive?   The Research and Development (R&D) Tax Incentive program was developed to assist businesses recover some of the costs of undertaking R&D.   The program is administered jointly by AusIndustry and the Tax Office. The R&D tax incentive provides a tax offset to eligible companies that engage in R&D activities.   Companies engaged in R&D may be eligible for either:   a 45% refundable tax offset (equivalent to a 150% deduction) - for entities with an aggregated turnover of less than $20 million per annum, or a 40% non-refundable tax offset (equivalent to a 133% deduction) - for all other entities.   Eligibility begins with the structure that is conducting the R&D. The following are considered eligible entities:   an Australian resident company; or a foreign company that: is a resident of a country with which Australia has a double tax agreement; and carries on R&D activities through a permanent establishment in Australia; or a public trading trust with a corporate trustee.   If you are operating through an eligible entity, you must register your R&D activities with AusIndustry:   within 10 months after the end of the income year (registering for the income year in which the offset is to be claimed), and prior to claiming the R&D tax offset in the tax return.   This means that you have until 30 April to submit your R&D application with AusIndustry. Once you have met the deadline and submitted your application, AusIndustry will review your activities in order to determine whether they are eligible ‘core activities’.   To be eligible, core activities must be experimental. Experimental activities are (as per the Tax Office's Guide to the Research and development tax incentive):   activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: is based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions, and that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).   Excluded activities can be found through the AusIndustry website.   Non-core R&D activities include:   market research; management studies or efficiency surveys; developing, modifying or customising computer software for the dominant purpose of internal administration of business functions; and commercial, legal and administrative aspects of patenting, licensing or other activities.   The registration of R&D activities is managed by AusIndustry, which checks that the activities comply with the law. The Australian Tax Office (ATO) determines the eligibility of the expenditure claimed in the company tax return.   A common misconception is that the R&D Tax Incentive is a government grant.   It is a tax incentive and its benefits flow through the company tax return. This means that the R&D Tax Incentive has nothing to do with government grants.   The law and logic here is that anyone advising businesses on R&D Tax for a fee must be a registered tax agent. Make sure that your adviser is one and has the experience necessary to guide you. If in doubt, visit the Tax Practitioners Board website.   One final note – the deadline for the 2012/13 financial year for the submission of the R&D application and activity registration form is 30 April 2014. Best to connect with your tax advisor before the April rush.

Soloists rejoice as ATO, Fair Work told to lay off independent contractors

9:42AM | Tuesday, 24 September

The business community has enthusiastically welcomed the news that Small Business Minister Bruce Billson has issued a warning to the Australian Tax Office to go easy on independent contractors and the self-employed.   The comments fulfil a hope within enterprise that Billson’s appointment will plug a knowledge gap of small business issues in government.   “This is very good progress,” said Peter Strong, chief executive of the Council of Small Business of Australia.   Ken Phillips, chief executive of the Independent Contractors Australia, told SmartCompany he was “absolutely delighted”.   “I’m delighted to have a government moving so quickly on these key issues – it’s really impressive,” he says, adding this announcement is yet more evidence the new government doesn’t simply think of small business as a token industry.   “Bruce Billson has small business as his only title, and they’ve moved his department to Treasury which gives him a real authority.   “This is quite a big shift and clear signal at the earliest stage of government that what they’ve said about small business being front and centre is being taken seriously.”   Billson told The Australian Financial Review the ATO, along with the construction watchdog and the Fair Work Ombudsman, have been told to take it easy on independent contractors.   “The issue is less about the law itself; it’s the way in which it has been administered,” he said.   “There are hundreds of thousands of these courageous, enterprising, self-motivated individuals who are making a contribution to the economy but suddenly found themselves in the Bermuda Triangle as contributors to the economy.”   Billson claimed the previous government had told these authorities to pressure contractors in order to move them towards employment agreements in which unions have more sway.   “We’ve seen independent contractors … in the clothing, textile and footwear area engaged to do contract work now being told they have to be engaged as employees to get minimum hours.”   Billson also mentioned a practice within the Tax Office to either refuse issuing of ABNs or withdraw ABNs from individuals.   “We’ve had examples raised with us that the ATO has denied a business an ABN for reasons that were not clear but there is no avenue to appeal.”   The ATO regularly reviews ABNs to determine if their holders are actually carrying on a business.   The Abbott government has pledged one million new jobs during its term – Ken Phillips says in order to reach that number, it needs to focus on small business.   “It’s good to see the small business is front and centre here,” he says.   Peter Strong says independent contractors need to be protected if the government wants to promote the virtues of being self-employed.   “This works hand-in-hand with fixing up contracting law,” he says. “The people who have been targeted have been victims, so you need to stop haranguing those who are doing the right thing.   “This is about people who are looking to increase their income and aren’t doing it in any way that could be considered dodgy.”   The Fair Work Ombudsman has been consistent in cracking down on the practice known as ‘sham contracting’, in which businesses classify employees as contractors in order to avoid paying them wages and entitlements.

Employee share scheme tax systems set for an update

6:10PM | Wednesday, 5 June

The federal government is set to consult with Australian industry over the tax treatment of employee share option schemes, which start-ups say needs to be overhauled to promote growth.   The government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups, and will consult with industry on the impact of tax and administration requirements for the schemes, StartupSmart has been told.   Revamping the tax treatment of employee share option programs is fundamental to growing the start-up sector in Australia, says Malcolm Thornton, investment director at venture capital fund Starfish Ventures.   “It’s a key currency that people employ to keep highly talented people on board while conserving cash,” says Thornton.   The start-up sector can expect consultations with the relevant federal government departments in the future, with sources telling StartupSmart the government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups.   Employee share option programs enable start-ups to attract and retain leading talent to their company by offering staff a proportion of the future company on top of the (often low) wages they are able to pay.   The complexity of the current system has held Australian start-ups back from embracing the system. A key drawback is that employees can become liable for significant amounts of tax based on the asset’s value, even if it’s not currently earning any capital.   Thornton says an update of taxation rules around the program is “imperative” for the start-up sector.   “It’s completely complicated and convoluted in Australia, compared to when our companies are US-based, and we can just take a program off the shelf and every lawyer in San Francisco knows how to manage the process.”   Thornton says the current system fails to grasp the variety of companies that would benefit from the implementation of such schemes.   “Start-ups and high growth companies have very different characteristics to large, mature multi-decade companies,” he says.   “One of the key elements to appreciate is that there is little to no value in the options until the company has grown and either lists or is acquired.”   Alan Downie, chief executive and co-founder of BugHerd, a visual bug tracker for web developers, has recently implemented an employee share scheme for one of his six staff and is working on setting the scheme up for another employee.   “It’s a critical issue for start-ups,” says Downie. “As a start-up you don’t have a lot of cash so it’s the way to keep talent. If you have to compete with guys like Telstra and Atlassian for developers, all you’ve really got is the growing company equity.”   Downie and his co-founder Matt Milosavljevic spent 12 months working out how to implement the scheme for their first hire, a developer.   “It was a very long and tedious and expensive process,” he says. “There is no standard way to do it and that’s the problem.”   “When our developer started with us, he was on a third of what he could make as a developer. But he was so engaged and he got we didn’t have the money, so it was really important to him to get a piece of the company.”   Downie says he spoke to four accountants, a few lawyers and several entrepreneurs about how to implement an employee share scheme, and they all had different answers.   “It’s still not ideal for the employee, as they still have a bit of uncertainty. From the employer’s point of view, you want to have solid understanding of what the government wants, rather than jumping through hurdles.”   He says the Australian Tax Office hasn’t spoken to any of the parties involved, so it’s still untested.   According to a report by the ABC, the employee share options scheme will be explored in the next update to the National Digital Economy Strategy.

Start-ups to be paid interest on outstanding Government bills: Hockey

5:54AM | Wednesday, 22 May

A Coalition government will commit Commonwealth departments and agencies to pay small business suppliers on time or face paying interest on outstanding bills, Opposition treasury spokesman Joe Hockey says.   “Under the Coalition, all small businesses that provide services to the Commonwealth will get the benefit of a ‘pay on time or pay interest’ approach- formal contracts or not,” Hockey said in a post-budget speech to the National Press Club in Canberra.   He says that if a bill isn’t paid within 30 days, interest will be applied at the same rate the Australian Taxation Office expects people to pay for late tax payments, currently 9.95%.   “Small businesses work hard for their money and should not be bankrolling government,” he said.   Hockey attacked the Labor government’s budget handed down last week, which revealed a $19.4 billion deficit, claiming it lacks integrity, pledging the Coalition would build a strong economy.   Pointing out he came from a family of small business people, including cousin Gus whose menswear business in Sydney had recently gone broke, Hockey says enterprise is the backbone of the Australian economy.   He says government should support business and reiterated that small business would be a cabinet portfolio within the Treasury department if the Coalition wins the federal election on September 14.   The Coalition’s objective is to reduce the overall tax burden on businesses and taxpayers “over time”, he said.   Hockey says the Coalition would also seek to create a more “cooperative” relationship between taxpayers and the Australian Taxation Office by appointing people with business experience to senior posts, reducing the complexity of tax laws while increasing their certainty, and establish a standing Parliamentary Committee to oversee tax administration.   Expressing reservations about the ATO administering and policing Australia’s tax system, Hockey says the Coalition would be prepared to break up the tax office and separate its policing and administration functions if the oversight committee believed it was necessary.   Australian Tax Office staff numbers were boosted by 508 in the federal budget as the government announced a crackdown on trusts and closing corporate tax loopholes.   Tax and small business experts had expressed concerns the crackdown could extend to small businesses.

THE NEWS WRAP: The Chaser boys and the ABC sued by Swisse over The Checkout

5:17PM | Thursday, 2 May

The father of Swisse chief executive Radek Sali has launched a defamation action following claims on ABC’s consumer affairs program The Checkout, claiming a recent episode ‘‘severely injured his reputation and standing’’.   Presenters Craig Reucassel and Julian Morrow along with executive producer Nick Murray and the ABC are all named as defendants in the lawsuit.   Avni Sali’s lawsuit centres around claims made during the episode broadcast March 21, which alleged the National Institute of Integrative Medicine he founded was not independent in conducting clinical tests of Swisse products.   “The program was meant and was understood to mean that the plaintiff performed clinical tests... and then manipulated the published results for the commercial benefit of Swisse,’’ Sali says.   Packer lieutenant John Alexander appointed to Seven West Media board   Seven West Media has announced it is appointing John Alexander, the former executive deputy chairman of James Packer's Crown Casino empire, to its board of directors.   "We are delighted John has accepted the invitation to join the board of Seven West Media," Seven West chairman Kerry Stokes states.   “His success in media and business speaks for itself. His appointment adds further depth to the board of our company as it continues to develop its businesses.”   Treasury looks at closing tax loopholes for digital services   The Treasury has released an issues paper examining the ways in which international online giants, including Google, Apple and Microsoft, minimise their tax bills by shifting profits from online services into low-tax jurisdictions.   “The global reach of multinational enterprises, along with the developments in information and communication technology…provides them with a high degree of flexibility in how to structure their affairs,” the paper states.   “These developments raise serious concerns about the efficiency, equity and sustainability of the income tax system.”   The paper also calls for submissions suggesting possible solutions to the erosion of tax revenues by international tech companies, along with further data that could assist the Australian Tax Office.   Overnight   The Dow Jones Industrial Average is up 0.9% to 14831.6. The Aussie dollar is up to US102.48 cents.

Top 10 fatal start-up mistakes

1:08AM | Monday, 7 January

This article first appeared June 22, 2012.   With warnings of a second global financial crisis and consumers at home who refuse to part with their cash, it may seem like hard times are ahead for Australian small businesses.

Insolvencies rise in October, but Christmas could bring a reprieve

3:43AM | Monday, 11 March

The number of businesses entering insolvency reached a record number in October, but insolvency firms say activity has lessened now they're settling in for the traditionally quiet Christmas period.

Abbott promises to double small business growth rate

3:50AM | Monday, 11 March

Federal Opposition Leader Tony Abbott has promised to double the existing annual rate of small business growth to 1.5% if elected.

Five businesses soloists can start on the cheap

8:45AM | Wednesday, 8 August

Getting start-up funding can be tough when you’re a solo operator. Investors are often reluctant to stump up the cash.

Federal Government spends almost $40,000 on a small business app

8:11AM | Tuesday, 7 August

The Federal Opposition has slammed a small business iPad app as "more Gillard Labor government waste", after it was revealed the app cost $37,950. But an independent app developer says that's a reasonable price to pay for an app.

Three key tax management rules to follow in the new financial year

5:51AM | Wednesday, 30 May

Tax represents a large cost for most SMEs and it undoubtedly contributes to the failure of many small businesses.

Seven essential tax time housekeeping tips

6:36AM | Wednesday, 6 June

The end of the financial year is now just weeks away.

THE NEWS WRAP: David Jones unveils plan to tap in to rising online sales

3:32PM | Wednesday, 21 March

David Jones is to invest $160 million in the next two years in a desperate attempt to turn around its fortunes in the face of rising online sales.

11:19PM | Monday, 28 November is an online service designed to help businesses answer the age-old question: what price should I charge for my product or service?

Manufacturing, tourism and retail worst hit by jump in collapses

7:08AM | Friday, 8 July

Insolvency experts are urging retailers, manufacturers and tourism operators to downgrade growth targets in light of new insolvency figures revealing that those sectors are the hardest hit.

Working on the fringes

3:57AM | Thursday, 17 March

The end of March signals the end of the fringe benefits tax year. If you haven’t already thought about this, now is the time to have a look at the impact of FBT on your business.

THE NEWS WRAP: SMEs have racked up $9.4 billion in ATO debts

3:35AM | Monday, 7 March

Small businesses have racked up $9.4 billion in debts to the Australian Tax Office, new figures show.

THE NEWS WRAP: The ATO set to target 46,000 businesses for under-reporting

3:45PM | Thursday, 3 March

The Australian Tax Office is to target 46,000 businesses suspected of under-reporting their case sales.

ATO crackdown sees rise in garnishee orders

2:18PM | Tuesday, 15 February

Small businesses with outstanding tax debts are the latest targets of the Australian Taxation Office, which is increasing its use of garnishee orders to withdraw funds direct from taxpayers' bank accounts.

THE NEWS WRAP: CBA will think twice about lifting mortgage rates higher than the RBA

2:56PM | Wednesday, 9 February

Ralph Norris, chief executive of the Commonwealth Bank of Australia, has admitted that he will think twice about lifting mortgage rates higher than the Reserve Bank’s official rate in the future.