Farmers lose the tax incentive to be creative – R&D offset claims – Taxpayer Alert TA 2015/3

Our friends at the ATO have seen fit to crush any new approaches to farming with their latest anti-farmer  – Taxpayer Alert TA 2015/3.

The ATO (and also AusIndustry couldn’t help getting into the act) are threatening primary producers in the broadacre farming sector about not claiming the R&D Tax Incentives. This is for the cost of fertilisers and soil improvers which the ATO has decided is not sufficiently worthy to be deemed R&D activities. For the ATO, experimenting with combinations of fertilisers and soil improvers are automatically, without further discussion, merely ‘business-as-usual farming’.

‘The law contains a number of requirements which must be satisfied for activities to be eligible for the R&D Tax Incentive,” claimed ATO Deputy Commissioner Tim Dyce. Normal business expenditure is generally not eligible under the measure. Thanks for that Tim. We know that already. I suggest that you get in your government car and drive out of Canberra for about 1/2 hour and talk with some farmers. Australian farmers have led the way in R&D. We are world leaders.

Call to Action

Going forward, it would now be prudent to get a law firm to sign off to say that what you are doing does comply with R&D – you can make changes so you do comply. Or else, apply to AusIndustry for a finding about your eligibility for the R&D Tax Incentive.

If you have been in this situation, then you need to meet with your Accountant and tax lawyer. You have two choices: get a lawyer’s letter to say that you comply; or’, if you don’t comply, get the tax lawyer and Accountant to make a voluntary disclosure to the ATO and amend your tax return.

If you are a professional adviser then penalties may apply to you, personally, as a ‘promoter’ of this type of arrangement. You may need the protection of your tax lawyer. Registered tax agents also risk being referred to the Tax Practitioners Board for alleged breaches to the Tax Agent Services Act 2009.

Dr Brett Davies,  CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
39 Stirling Highway, Nedlands, WA (Post Office Box 5169, Dalkeith, WA 6009)
Mobile:      04777-96959
Direct:       08 6389-0400
Reception: 08 6389-0100
Email:        [email protected]
Skype:       brettkennethdavies





What are the ATO and AusIndustry’s concerns?

We are concerned that entities involved in this arrangement are attempting to access the R&D Tax Incentive for expenditure related to normal business rather than eligible R&D activities.

A number of registered activities have been reviewed by Innovation Australia, and found to be ineligible activities for the purposes of claiming the R&D Tax Incentive. Innovation Australia’s reasons include:

  • The activities lacked the ‘systematic progression of work’ (which requires a hypothesis, experiment, observation and evaluation leading to logical conclusions).
  • The activities involved the use of established products and existing organic treatment methodologies. A competent professional could have known or worked out the outcome of using the soil improvers without conducting an experiment.
  • The activities claimed did not have a significant purpose of generating new knowledge.
  • The size of the farming area to which the soil improvers were applied was excessive relative to the number of samples taken. The scale of the activities is more consistent with commercial production than the generation of new knowledge.
  •  Entities may have relied on R&D undertaken by or for another party, rather than carrying on their own R&D activity. The onus is on taxpayers to show that they are carrying on their own R&D activity.

We are concerned that other entities in the farming industry may be inappropriately claiming the R&D Tax Incentive under similar circumstances.

Although the arrangement described above concerns the use of purchased soil improvers across all, or substantially all, of a farming property, we also have concerns that some entities in the farming industry may be encouraged to claim the R&D Tax Incentive for other types of expenditure that relates to their normal business activities and which does not qualify for the R&D Tax Incentive. While legitimate R&D activities in the farming industry are to be encouraged, taxpayers in the industry need to be alert to the fact that normal business expenditure is not eligible for the R&D Tax Incentive. Potential R&D activities should be evaluated against the relevant criteria to ensure claims are eligible.

For more information, refer to AusIndustry or this ATO fact sheet about the R&D Tax Incentive.

What are we doing?

Innovation Australia has reviewed the registered activities of certain entities and issued findings that the activities are ineligible for the R&D Tax Incentive.

The ATO and AusIndustry are working closely on this arrangement and have contacted entities who we believe may have entered into this type of arrangement to share our concerns.

The ATO and AusIndustry will monitor registrations for activities that are similar to those described in this Alert and will conduct compliance activities where appropriate. AusIndustry is developing a Specific Issue Guidance product to assist taxpayers engaged in the farming industry, and their accountants and advisors, to correctly identify and document eligible R&D activities in that industry.



1 Comment

  1. Colin Edwards says:

    I have been a cocky for 38 years. I have flirted with bankruptcy all my life. Stop kicking farmers, ATO. Thank you Dr Davies for caring about us in the bush.

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