Fintech Forum

Melbourne21June2017

BrettChallansDirector,InnovationsTaxAustralianTaxationOffice

(08)74222382

AdministrationofInnovationProgrammes

• AusIndustryandtheAustralianTaxationOfficehavejointadministrationof:• R&DTaxIncentiveProgramme• VCLPsandESVCLPs

• TheATOhassoleresponsibilityfortheadministrationoftheESICProgramme

Research&Development

Co-AdministrationoftheR&DProgramme

• FortheR&DTaxIncentive

• AusIndustryhasresponsibilityforR&Dactivities

• TheAustralianTaxationOfficehasresponsibilityfortheexpenditureontheR&Dactivities

JointR&DComplianceStrategy• JointRiskApproach

• Fraud•OrdinarybusinessactivitiesversuseligibleR&Dactivities• SoftwareDevelopment•Agriculturalclaims•Mining• Buildingexemptionclaims(s355-225oftheITAA1997)• Consultants

JointComplianceStrategycont…

• Jointeducation

• Co-brandedpublications

• Jointcomplianceactivities

JointTaxpayerAlerts• TA2015/3AccessingtheR&DTaxIncentiveforineligible

broadacre farmingactivities

• TA2017/2ClaimingtheResearchandDevelopmentTaxIncentiveforconstructionactivities

• TA2017/3ClaimingtheResearchandDevelopmentTaxIncentiveforordinarybusinessactivities

• TA2017/4ClaimingtheResearchandDevelopmentTaxIncentiveforagriculturalactivities

• TA2017/5ClaimingtheResearchandDevelopmentTaxIncentiveforsoftwaredevelopmentactivities

TheReviewoftheR&DTaxIncentive– 3FsReview

• ReviewPanel– MrBillFerrisAO(Chair),DrAlanFinkelAO,MrJohnFraser

• ReportprovidedtoGovernmentinApril2016andreleasedforpublicconsultationon28September2016

• TheGovernmentisyettorespondtotheReport• Reviewhighlights– LargestcomponentoftheAustraliangovernmentsupportforinnovation

– Significantgrowthisplacingincreasingstrainontheadministrativeandcompliancemodelfortheprogramme

– Theprogrammeshouldbeunderpinnedbystrongintegritymeasurestopreservethecredibilityofthetaxsystem

SummaryAllYears

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

2012 2013 2014 2015 2016RefundableR&Damount Non-RefundableR&Damount

R&DClaimsbyState

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

ACT NSW NT QLD SA TAS VIC WA

RefundableR&Damount Non-RefundableR&Damount

R&DExpenditure• RefundableR&DTaxOffset– 43.5%ofR&Dexpenditurewhereaggregatedturnoverislessthan$20m

• Non-refundableR&DTaxOffset– 38.5%ofR&Dexpenditurewhereaggregatedturnoverisgreaterthan$20m

• Whatisaggregatedturnover?– ConnectedEntities–Affiliates

R&DExpenditure– KeyPoints• RecordKeeping– OzoneManufacturingPtyLtdvFCofT [2013]AATA420

• ExpendituretoSpecificActivities– TierToysLimitedvFCofT [2014]AATA156

• MethodologyforCalculatingPercentageofTotalCosts

R&DExpenditure– KeyPointscont…• PaymentstoAssociates– MustbepaidtobeincludedasanotionalR&Ddeduction

• Ordinarybusinessactivities(alsoreferredtoasbusinessasusual)

• Excludedexpenditure

• Adjustments– Feedstockadjustments– Clawbackadjustments

Start-upsundertakingR&D

• Commonmistakesforstartups– FormationexpensesclaimedasR&Dexpenditure– ThewrongentityisundertakingtheR&Dactivity– TheentityundertakingandregisteringtheR&Dactivitiesmustbeacompany

EarlyStageInnovationCompanies

TaxIncentivesforinvestors

• Newlyissuedsharesonorafter1July2016

• 20%non-refundablecarry-forwardtaxoffset

• Capitalgainstaxexemptionforinvestors

• NewreportingobligationbyESIConshareissues

Qualifyingasanearlystageinnovationcompany– companyrequirements

• IncorporatedorregisteredintheAustralianBusinessRegister

• Totalexpensesof$1 millionorlessinthepreviousincomeyear

• Assessableincomeof$200,000orlessinthepreviousincomeyear

• Notlistedonanystockexchange

Qualifyingasanearlystageinnovationcompany– 2tests

• AcompanytoqualifyasanESICmustsatisfy1of2tests

• Principle-BasedTest– s360-40ITAA1997o5criteria

• 100PointsTest– s360-45ITAA1997o8criteria

Qualifyingasanearlystageinnovationcompany– Principle-BasedTest

1. Thecompanymustbegenuinelyfocusedondevelopingoneormoreneworsignificantlyimprovedinnovationsforcommercialisation

2. Thebusinessrelatingtothatinnovationmusthaveahighgrowthpotential

3. Thecompanymustdemonstratethatithasthepotentialtobeabletosuccessfullyscaleupthatbusiness

4. Thecompanymustdemonstratethatithasthepotentialtobeabletoaddressabroaderthanlocalmarket,includingglobalmarkets,throughthatbusiness.

5. Thecompanymustdemonstratethatithasthepotentialtobeabletohavecompetitiveadvantagesforthatbusiness.

Qualifyingasanearlystageinnovationcompany– 100PointsTest

• Acompanymustaccrueatleast100points

• Pointsrangefrom75pointsdownto25points

PrivateRulingApplications

• PrivateRulingapplications• RulingsonPrincipleBasedTestnotthe100PointTest

• PrivateRulingapplicationsissues• Thestructure• Establishingthattheinnovationisneworsignificantlyimproved

VentureCapitalLimitedPartnerships(VCLPs)

and

EarlyStageVentureCapitalLimitedPartnerships(ESVCLPs)

VCLPsandESVCLPs

• Co-administerwithAusIndustry

• BothVCLPsandESVLPsaimtoincreasecapitalinvestmentinAustraliabyprovidingbeneficialtaxtreatmenttoeligibleandlocalforeigninvestors.

• From1July2016,furthertaxincentivesmayapplyforinvestmentsinanESVCLP

AccessingLosses

AccessingLosses

NISAAnnouncement• ‘samebusinesstest’willberelaxed

• ‘predominantlysimilarbusinesstest’introduced allowingaccesstolosses,where:– Similarassetsused– Incomegeneratedfromsimilarsources

GeneralInformation

GoodTaxGovernance

• 7principlesofgoodtaxgovernance–Professionalandproductiveworkingrelationship–Accountablemanagement&oversight–Recognisetaxrisks– Seekadvice– Integrityinreporting– Timelylodgementsandpayments– Ethicalandresponsiblebehaviour

GettingHelp

• SeekingadvicefromtheATO

• Earlyengagement

• www.ato.gov.au/business/research-and-development-tax-incentive/

• www.ato.gov.au/general/new-legislation/in-detail/new-tax-incentives-for-early-stage-investors/

FurtherInformation

• AustralianTaxationOffice– 132866– www.ato.gov.au/randdtaxincentive

• AusIndustry– 132846– www.business.gov.au