Tax agent sentenced to two years’ prison over $550,000 in fraudulent R&D tax incentive claims: Warning sounded on R&D scrutiny

The Australian Taxation Office will make chasing those who misuse the research and development tax incentive as a top priority, after a tax agent was sentenced to 29 months in prison for his role in two fraudulent R&D claims worth $550,000.

The tax office has confirmed the tax agent will serve at least 18 months in prison after he was found to be involved in two separate fraudulent R&D tax incentive claims made in 2013 while working for an unnamed company.

The Victorian County Court last week sentenced the man, after finding he transferred $380,000 of the $549,719 claimed into his personal bank account.

Fairfax reports the man plead guilty in September to defrauding the Australian government tax incentive scheme, admitting to providing falsified invoices for R&D claims in a business.

The tax office reports the man worked in a role as a tax professional within the business that made the fraudulent claims.

ATO deputy commissioner Will Day said in a statement on the matter that serious R&D tax incentive abuse is now a top priority for cross-agency investigations involving the Serious Financial Crime Taskforce.

“Those who deliberately do the wrong thing and claim the incentive which they are not entitled to will be caught and held to account for their actions,” he said.

The case prompted Minister for Revenue and Financial Services Kelly O’Dwyer to remind businesses on Friday that the crime taskforce is “actively pursuing” cases in which it believes companies are claiming R&D funds when not entitled to them.

“Unfortunately, there are those who believe they can game the system for their own advantage. Our message to those people is you will be caught, and you will face the consequences,” O’Dwyer said last week.

When contacted by SmartCompany, the tax office referred businesses to its resources on company and project eligibility for claiming the tax incentive.

The ATO reminds businesses that individuals cannot claim the incentive, and it is only available to incorporated entities that are in most cases undertaking research work for their own businesses, rather than a third party.

The ATO outlines that eligible activities for claiming R&D funds are those where the “outcome cannot be known or determined in advance on the basis of current knowledge”, or are genuinely being undertaken for the purpose of generating new knowledge.

Get advice on claims

David McKellar of Allied Accountants tells SmartCompany many businesses put together R&D tax incentive claims themselves, but he says given the complicated nature of the scheme, getting an expert in is recommended.

“With those that are doing these claims themselves, chances are they’re getting them wrong. We always advocate the use of an R&D specialist,” he says. 

McKellar believes it is still “very common” that small businesses and startups have misconceptions of the kinds of projects they can claim for, and reminds businesses that just because they are undertaking a genuine research project, does not mean all elements involved in that project are 100% claimable.

“I think where a lot of claimants get unstuck is on the claims of computers and those sort of things. And then if you’re bringing on more staff for the project, are they only working on that project?”

He observes businesses like software companies still tend to think they are automatically eligible to make a claim, despite the fact that not all projects like software development are eligible for a claim because they often use pre-existing tools and code, rather than creating something new.

He advises businesses to check their claims with an expert in the field before submitting, highlighting the tax office continues to scrutinise all claims submitted.

“Because it is a refundable offset, it is the government giving you money, and these claims do get looked at much much more closely.”

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