The Australian Taxation Office (ATO) and the Department of Industry, Innovation and Science (DIIS) are warning about a scheme where some promoters, including those operating under reputable brand names, are advocating that companies who pay the compulsory Wine Grapes Levy (the levy), can register the activity with DIIS or simply claim the levy, as all or part of a notional deduction in calculating their entitlement to a Research and Development (R&D) tax offset.
The levy is paid by wine producers to the Department of Agriculture and Water Resources and is calculated based on the total number of tonnes of grapes used by the wine producer in a year.
The levy is applied to fund the marketing and research and development programs undertaken by the Australian Grape and Wine Authority (‘Wine Australia’). Wine Australia is not a registered Research Service Provider (RSP) nor a Cooperative Research Centre under the R&D Tax Incentive program.
ATO concerns for ineligible claims
The ATO and DIIS are concerned that some wine producers have been misled into thinking they are able to include the levy as eligible R&D expenditure which has been incurred on registered R&D activities.
The levy can usually be claimed by a wine producer as an ordinary business deduction against the wine producer’s assessable income. However, the way R&D commissioned by Wine Australia is conducted, means that the levy cannot be claimed in calculating a refundable or non-refundable R&D tax offset for the wine producer.
Levies paid to industry organisations can only be claimed in calculating an R&D tax offset if the industry organisation is a Levy Collecting RSP. Wine Australia is not a Levy Collecting RSP.
Generally, eligible R&D expenditure can only be claimed on R&D activities which are registered by the claimant with DIIS. If the R&D activity is carried on for the claimant by a third party, the claimant needs also to be able to show that:
- it has effective ownership of the know-how, intellectual property, or other results arising from the R&D expenditure
- it has appropriate control over the conduct of the R&D activities
- it bears the financial burden of carrying out the R&D activities
- the R&D activity is not carried out to a significant extent for another entity, or entities.
It follows that although a company which produces wine may have registered R&D activities with DIIS, the company’s expenditure on the levy bears no connection with the R&D activities it carries on.
In addition, the funds provided through the levy are used by Wine Australia to invest in R&D activities undertaken by research bodies based on the R&D provider’s own project proposals and are conducted at the direction of Wine Australia. The know-how and intellectual property arising from the R&D activities is retained by the entities investing in the R&D, and as is the case with the financial risk, the results are broadly shared.
Finally, the R&D activities commissioned by Wine Australia are carried on for the benefit of the broader grape and wine industry, not just for individual companies that pay the levy.
We also note that many of the activities carried on by Wine Australia which are funded by levies, such as marketing and promotion, are expressly excluded from the definition of R&D activities and therefore related expenditure cannot be included in an R&D tax offset claim.
Need professional help
You should consider whether these concerns are applicable to your circumstances.
Treadstone is a registered tax agent for R&D tax and can provide professional advise and assistance in preparing your R&D tax registrations and R&D tax schedules .
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