TAs regarding certain ‘arrangements of concern’ in the context of R&D tax incentive claims
The ATO has issued two Taxpayer Alerts (TAs) regarding certain ‘arrangements of concern’ in the context of R&D tax incentive claims.
TA 2023/4 states that the ATO is concerned about, and will be reviewing, claims made by R&D entities in respect of expenditure incurred under an agreement with an associate (the ‘Service Provider’). The particular features of arrangements the ATO are concerned about include where:
- it is incorrectly claimed that an R&D entity has incurred or paid relevant expenditure under an agreement with the Service Provider; or
- an R&D entity claims a tax offset for expenditure incurred in relation to R&D activities purportedly conducted for the R&D entity’s own benefit, but which are instead in substance being conducted for the benefit of the Service Provider; and
- the Service Provider is not an entity that would be entitled to claim an R&D tax offset, or as much of an offset, were it to conduct the relevant R&D activities for its own benefit.
The ATO’s view as expressed in TA 2023/4 is that such arrangements may give rise to Part IVA implications if they were entered into or carried out by one or more parties for the purpose of obtaining a tax offset, even if they are otherwise effective under the substantive R&D tax incentive provisions.
TA 2023/5 states that the ATO is concerned about arrangements where Australian resident R&D entities are claiming R&D tax offsets in respect of expenditure incurred on R&D activities conducted overseas, where those overseas R&D activities were in fact being conducted for the benefit of a related foreign entity. Where an arrangement falls within TA 2023/5, the ATO is concerned that:
- the Australian resident R&D entities do not actually qualify for the R&D tax offsets claimed; or
- even if the substantive R&D tax incentive provisions are satisfied, that Part IVA may still apply to cancel any tax benefits obtained.
Draft guidance regarding deductibility of personal financial advice fees
TD 2023/D4 sets out the Commissioner’s view regarding the deductibility of financial advice fees paid by individuals who are not carrying on a business, and the requirements that the Commissioner believes need to be satisfied for an individual to claim such a deduction under sections 8-1 or 25-5 of the ITAA 1997. The draft Determination is intended to replace TD 95/60 (which has been withdrawn with effect from 12 December 2023), in light of regulatory reforms to the financial services industry in recent years. However, TD 2023/D4 does not represent a change in the Commissioner’s view regarding the deductibility of financial advice fees as outlined in TD 95/60.
Guidance regarding RITCs on advisor fees for superannuation funds and IDPS investment platforms
The ATO has issued guidance setting out the Commissioner’s view regarding the eligibility of superannuation funds and investor-directed portfolio services (IDPS) investment platforms to claim reduced input taxed credits (RITCs) on adviser fees where personal financial advice is provide to a member of the fund or investment platform. In summary, the Commissioner considers that superannuation funds and IDPS investment platforms will generally have no entitlement to claim RITCs in these circumstances, on the basis that the recipient of the relevant supply is the member (and not the fund or investment platform). This is consistent with the Commissioner’s existing guidance in GSTR 2006/9.
ATO end of year office closure
The ATO has announced that its offices will close from midday on Friday 22 December 2023 and reopen on Tuesday 2 January 2024.
Class and product rulings issued
The ATO has issued:
- CR 2023/69 – Newcrest Mining Limited – Employee share scheme – Shares disposed of under scheme of arrangement;
- CR 2023/70 -– B&C Hospitality Holdings Pty Ltd – Employee share scheme – Reducing the minimum holding period;
- CR 2023/71 – SILK Laser Australia Limited – Scheme of arrangement and special dividend;
- CR 2023/72 – St Barbara Limited – Return of capital by in specie distribution of ordinary shares in Genesis Minerals Limited; and
- PR 2023/26 – Luxury Escapes Business Traveller Program.