Chartered Accountants Australia and New Zealand (CA ANZ) lodged a submission to the Australian Taxation Office (ATO) on draft Taxation Determination TD 2020/D1 Income tax: notional deductions for research and development activities subsidised by JobKeeper payments (the Draft).
The Draft sets out how the ‘at risk’ rule applies to JobKeeper payments received by a research and development (R&D) entity for paid employees who are wholly or partially engaged in R&D activities and under the business participation entitlement.
We agree with the ATO’s views and conclusions reached on the business participant entitlement aspect of the Draft.
However, we respectfully disagree with the ATO’s views and conclusions reached in relation to the paid employees aspect. Accordingly, this submission focuses on those elements of the Draft.
In our view, the ‘expenditure at risk’ rule does not apply to the JobKeeper payments received in relation to R&D wages expenditure of claimant employers. The key reason is that the nexus test in the ‘at risk’ rule is two-fold: (i) ‘consideration’ nexus – a legal relationship between the JobKeeper payment and something done/given up (an OUTPUT); then (ii) ‘causal’ nexus – a factual relationship between the consideration and the R&D wages expenditure (an INPUT), which can be direct or indirect.
Instead, the R&D clawback provisions under Division 355-G may potentially apply to the JobKeeper payments as the grant or subsidy could be a recoupment / reimbursement
In our submission, we explain in greater detail the ‘Expenditure at risk’ provision under section 355-405, and we outline nine (9) specific reasons why we consider that the legislative tests are not met by the JobKeeper payments.