R&D Tax Incentive – Incental Overseas Expenditure
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R&D Tax Incentive – Incidental Overseas Expenditure
When claiming the R&D Tax Incentive, the ATO has historically allowed incidental overseas expenditure to be considered “incidental and ancillary.” These costs, directly tied to Australian R&D activities, were capped at a suggested allowance of up to 5% of the total R&D expenditure.
This guidance provided businesses with some flexibility to include minor overseas expenses that supported their core R&D projects in Australia.
What Qualifies as Incidental Overseas Expenditure?
Examples of incidental costs included:
- Sending R&D staff overseas to observe techniques used in other countries.
- Attending relevant seminars that supported core R&D projects in Australia.
The key factor was that these costs needed to be directly connected to the Australian R&D activities and represent a very minor portion of the overall R&D expenditure.
Criteria
The key criteria were that the overseas costs:
- Directly supported Australian R&D activities – These expenditures had to clearly contribute to R&D being conducted in Australia.
- Were minor in quantitative terms – The spending was required to be insignificant compared to the total R&D expenditure.
Tax Ruling 2015/1 clarified that an incidental and ancillary purpose is one that “tends to assist or naturally goes with” the achievement of the primary purpose. However, it also stated that this does not necessarily mean the expenditure must be minor in size, potentially leaving room for interpretation.
Despite this, the application of the “incidental and ancillary” exception has always focused on costs being quantitatively minor. The origins of this interpretation date back to Tax Ruling IT2442 (now withdrawn), which first introduced the idea. Over time, the ATO continued the practice, emphasising that the sums claimed must remain small.
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The History of “Incidental and Ancillary” Expenditure
For many years, businesses could rely on the ATO’s guidance to claim minor overseas expenses under the “incidental and ancillary” exception for the R&D Tax Incentive. This allowed companies to include small overseas costs in their claims without needing an Overseas Finding, as long as those expenses were directly tied to their Australian R&D activities and were minor in scale.
What Was Considered “Incidental and Ancillary”?
The ATO’s previous advice indicated that overseas expenditure could be considered incidental and ancillary if it:
- Supported Australian R&D – Activities such as attending overseas seminars, observing techniques, or participating in trials needed to directly contribute to the company’s core R&D activities in Australia.
- Was minor in scale – The expenditures had to be insignificant in comparison to the total R&D expenditure, typically capped at 5%.
This interpretation was supported by Tax Ruling 2015/1, which defined “incidental and ancillary” as something that “tends to assist or naturally goes with” the achievement of the primary purpose. Interestingly, the same ruling clarified that being incidental and ancillary doesn’t always equate to being quantitatively minor, leaving some room for interpretation.
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Where Is the Advice Now?
The ATO has removed its previous explicit guidance on “incidental and ancillary” overseas expenditure. In the past, businesses could rely on clear advice suggesting that minor overseas costs, directly supporting Australian R&D activities, might qualify under the R&D Tax Incentive without requiring an Overseas Finding. That clarity is now gone.
Today, there’s no specific guidance from the ATO regarding incidental overseas costs, leaving businesses in uncertain territory. While the concept of “incidental and ancillary” expenditure isn’t explicitly disallowed, anecdotal evidence suggests that the ATO is less inclined to accept these claims. Many practitioners have reported that even minor overseas expenses are facing greater scrutiny, with claims often rejected unless there’s overwhelming evidence linking them to Australian R&D activities.
The removal of explicit guidance puts the onus on businesses to tread carefully. If you’re considering claiming such expenses, ensure they are well-documented, clearly justifiable, and undeniably connected to the core Australian R&D activities. However, the lack of official advice means the risk of rejection is higher than ever, making professional advice critical.
Without clear parameters, it’s wise to approach any overseas R&D expenditure claim with caution and an understanding of the potential challenges in defending it.
It’s crucial to consult with experts to navigate the nuances of the R&D Tax Incentive, especially when dealing with overseas expenses.
Navigating the R&D Tax Incentive can be complex, especially when it comes to claims involving overseas expenses. With the ATO’s shifting stance and removal of clear guidance, it’s essential to get expert advice to avoid mistakes that could lead to rejected claims or audits.
At Bulletpoint, we specialise in helping businesses understand the intricacies of the R&D Tax Incentive and ensure compliance with current regulations. Don’t risk getting it wrong—book a meeting with us today to discuss your claim and stay on the right side of the rules.
With over 250 glowing reviews and a proven track record, we’re here to make your R&D claim stress-free and successful.
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Why Choose Bulletpoint?
Bulletpoint is your trusted partner for navigating the complexities of the R&D tax incentive in Australia. We’re a Melbourne-based consultancy, led by the country’s top-rated R&D tax consultant, and our expertise is based on a decade of hands-on experience.
We have a history of success, with more than 500 R&D claims lodged to date, demonstrating our consistent ability to deliver favourable outcomes for our clients. Our clear, personable approach takes the complexity out of the process, helping you understand the intricacies of R&D definitions from a government perspective.
Our dedication and passion are reflected in the testimonials of our clients who appreciate not just our expertise but also our commitment to their success. We’ve been acknowledged for unveiling grant opportunities and making the R&D claim process more manageable and less daunting.
We take pride in our 4.8-star rating based on over 250 Google reviews, a testament to our unwavering commitment to excellence. Our quest for improvement is never-ending; we continuously learn from our experiences and client feedback.
At Bulletpoint, we’re not just about getting the job done. We aim to align your perception of R&D with government eligibility criteria and help you maximise your rightful incentives.
So, if you’re seeking proven expertise, a successful track record, and a consultative approach that blends professionalism with approachability, look no further than Bulletpoint. We are more than ready to guide you through your R&D tax incentive journey, ensuring not only a successful outcome but also a pleasant experience.
Ready to unlock your business’s full potential with R&D incentives? Book a meeting with us or call 1300 658 508. Let’s begin this rewarding journey together.What
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Bulletpoint is a Melbourne-based consultancy specialising in guiding businesses through the complex process of the R&D tax incentive. With a decade of experience under our belt, we’re proud to be led by Australia’s highest-rated R&D tax consultant. We’ve successfully lodged over 500 R&D claims, demonstrating a proven track record.
Our approach is straightforward and personable, focusing on cutting through the jargon to help businesses truly understand the definition of R&D in government terms. We’re passionate about what we do, and our clients appreciate this, often commenting on the difference our expertise has made to their businesses. They’ve praised us for uncovering grants they wouldn’t have otherwise known about and for making the whole process less stressful for them.
We’re proud to have an average rating of 4.8 stars from over 250 Google reviews. Despite our success, we continue to strive for improvement, learning from every piece of feedback we receive.
At Bulletpoint, we excel in helping businesses navigate the complexities of the R&D tax incentive process, ensuring they reap the benefits they deserve. As experts in our field, we’re well-versed in what works and what doesn’t when it comes to aligning businesses’ perceptions of R&D with the government’s eligibility criteria.
So, if you’re looking for accessible expertise and a proven success rate, you’ll find it with us at Bulletpoint. We’re ready to guide you through the R&D tax incentive process with a blend of professionalism and personality, ensuring your experience with us is not just successful, but enjoyable as well.