Is Your R&D Expenditure at Risk?
R&D Tax Incentive - 28 Jan 2022
On 22 December 2021, the ATO released Tax Ruling 2021/5 which outlines the circumstances in which a company’s Research and Development (R&D) tax offset may be reduced or denied where R&D expenditure is not considered ‘at risk’.
The intention of this provision is to ensure companies only receive an R&D tax benefit where they bear the financial risk as a result of the expenditure they incur on their R&D activities.
TR 2021/5 provides long awaited examples and further clarification on a number of aspects of the “at risk” rules including:
- Consideration expected to be received
- Nexus to R&D expenditure
- Regardless of results test
- Quantification of consideration; and
- Examples of scenarios where this rule may apply.
What does this mean for you?
Where you undertake R&D activities under commercial contracts for the supply of products or services, and are expected to be reimbursed, or paid for this work, further consideration must be given to ensure that you are complying with the expenditure ‘at risk’ rules and that the expenditure that you are including in your annual R&D claim is eligible.
It will be important to seek clarification in relation to your specific commercial arrangements, particularly those that capture activities (milestones) and expenditure that may have a nexus to the R&D activities you are considering including in your R&D tax claim.
For further information, or to arrange a discussion on how we can assist in the review of your contractual arrangements to determine how the new ruling may impact the eligibility of your R&D expenditure, please feel free to get in contact with your R&D team.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.