Research and the development activities receive tax - Free Samples

Question: Discuss about the Research and the development activities receive tax. Answer: Introduction The research and development tax incentives helps in providing tax incentives encouragement to the small companies in engaging in Research and Development for benefiting Australia. The Australian taxation office provides tax offsets for eligible research and development activities. For small companies the research and development possess two core components (Barkoczy, 2016). The first component is concerned with the tax offset for certain kinds of eligible entities whose average turnover is below than $20 million and the second component deals with the non-refundable tax offset for all the entities that are edible for claiming tax incentives. An important considerations regarding the research and development is that it helps in providing tax offset for small companies that are performing eligible research and development activities by lowering the organizations income tax liabilities. The tax offsets generally range from 38.5% to 43.5% that are available for the cost that is incurred on the activities depending upon the yearly average turnover of companies (Tan et al., 2016). Discussion: The taxation ruling of TR 92/2 is concerned with the application of section 73A for the scientific research carried on by the business or entities (Snape De Souza, 2016). The taxation ruling of 92/2 provides the explanation relating to the types of expenditure that is incurred by the small business in performing the scientific research will be considered for deductions under subsection 73A (1) of the ITAA 1936. The income tax deductions for the small business will be only allowed under the subsection 73A (1) given that the expenditure is not allowable under any other section of the Act. For a small business deduction on the expenditure of research and development would be considered under subsection if the payments to the approved research institutes for the carrying out the scientific research that is related to the taxpayers of small business. On the other hand income tax deductions would be allowed under subsection 73A (1) given that the payments to the research institutes that possess their purpose of undertaking the research that is associated with the taxpayers category of business (Cao et al., 2015). For a small business deduction would be considered if the expenditure incurred by the taxpayer in its business is having the nature of capital and the expenses in incurred in performing its own research that is associated the taxpayers own business. However, under taxation ruling of TR 92/2 no allowable deductions would be permitted under the subsection for the payments to carry out the research that is made to the bodies other than the approved research institut es. Ever since the enactment of the Section 73A the taxpayers are provided with the facilities of claiming tax deductions for the expenses that are incurred on the scientific research and the same would not have been considered allowable under the another provision of the Act namely section 51 (Saad, 2014). The section lay down that no allowable deductions would be considered unless the criteria of section 73A is met by small business. According to section 73A expenditure possess four categories which will be considered for the allowable deductions. They are usually the payments that is made to the institutes to approve the research, expenses that are of capital in nature to conduct the scientific research associated with the business (Braithwaite, 2017). Deductions can be claimed by small business taxpayers for the expenses incurred on the plant expenses given the plant is used in determining the scientific research and deductions on capital expenses on buildings. Specifically, any form of payments that is made along with the expenditure incurred at the time of income year by the person executing the business with the objective of gaining and producing the assessable income will be considered for allowable deductions. Deductions under the subsection 73A (1) would be considered for allowable deductions given the payments is made to the approved research institute which is approved for conducting the primary research associated to the small business (Graetz Warren, 2016). Additionally, small business would be able to obtain deductions for the payments that is made to the approved research institute that is undertaking the scientific research associated with the category of business to which the trade belongs. Section 73A (1) of the taxation ruling of TR 92/2 puts forward that there are two forms of payments that can be claimed as allowable deductions for small business. Both forms of deductions can be claimed by the individual that are carrying on the business for the purpose of deriving or generating the taxable income (Davis et al., 2015). An important assertion in this regard is that taxpayers that derive the taxable income however not carrying on the business will be disallowed from claiming an deductions under the section for either for payments. Both forms of payments should be made to the approved research institute. The taxation ruling of TR 922 under subparagraph 73A (1) (a)(i) defines that the payments that is made by the business for the purpose of carrying on the scientific research associated to the taxpayers own business will be considered as allowable deductions (Woellner et al., 2014). These payments would generally be in the nature of contractual or else these payments wo uld not be likely for the purpose of work related to the taxpayers of small business. Payments made the institute that possess the objects of the undertaking the scientific research associated to the class of the taxpayers business would be regarded as deductible under the subparagraph 73A (1) (a)(ii) (Bevacqua, 2015). These payments would usually be in the form of dues associated to the trade relation which is an approved institute or the payments that is made in respect of the exchange for certain significant advantage available to the tax payer. Paragraph 73A (1) (b) of the Taxation ruling 92/2 provides that the expenditure that is related to the business. The Australian taxation office provides that the Paragraph 73A (1) is considered as the scientific research of the in-house nature and it is not extended to the contract payments of the non-approved research institutes for the purpose of scientific research (Bird Zolt, 2014). According to the statutory interpretation it is understood that the common law of doctrine refers to the interpreting of the statute that is not clear and an individual taxpayer is required to look into the words that is surrounding the provision and not taking into the considerations the provision of isolation. As held in the judgement of the federal court in the mischief rule was approved in the Federated Engine Drivers and Firemens Association of Australia v The Broken Hill Proprietary Co Ltd (1911) states that regards must be paid in determining the reason for passing the Act. The explanatory memorandum of subsection 15A (1) of the Interpretation Act 1907 defines that to consider the deductibility of the expenditure extrinsic material might be put into the use in order to determine the intentions of the legislators. This material comprises of the explanatory memorandums. On assessing the explanatory memorandum, the functions of the subsection 73A (7) states that the it comprises of providing the taxpayer with the benefit of section in circumstances where amounts are paid to the institutions for the purpose of performing the scientific research before those institutions are formerly approved to the research institutes (Miller Oats, 2016). Additionally, an important assertion in this regard is that the extrinsic materials defines that subsection 73 A (7) is created to prevent the deductions. The deductions would be available given that the activities of the institutions have changed up to an extent that it is no more entitled to be considered as institute f or carrying out the scientific research. The Australian taxation office has communicated that they are lending support to the small business for undertaking genuine research and development activities. However, the Australian taxation office has expressed their concern concerning the deductibility of few claims with special focus on the refundable research and development tax minimization. In the recent study conducted with the large number of small business owners it has been identified that there are numerous claims for reductions that has been made improperly (Taggart, 2016). The Australian taxation office has even cited numerous such examples where the claims made by the small business are not proper. There has been the inability of the small business in substantiating the Research and Development expenditure and improper record keeping of the research and development cost. The owners of the small business are required to sufficiently maintain the business records in order to verify the amount of expenses that is incurred on the research and development activities. Additionally, nature of the research and development activities and the relationships with the expense incurred by the business in the activities. The Australian taxation office has identified that there are issues relating to the research and development expenses among the related parties. This comprises of the amount which is incurred but not yet paid or the amount is not paid in the relevant year or goods and service that is associated with the RD activities offered by the related parties at the overstated prices (Gaertner, 2014). The taxation ruling of TR 92/2 provides that there are specific provisions that prevails in the circumstances in which the expenditure occurred by the associated is defined by the legislation the same can be claimed as an allowable deduction. To support the research and development activity every activity must be directly associated with one of more research activities undertaken by the small business. In other the activities must be having a direct and close association with more than one components for the essential organized progress of work (Busom et al., 2014). In assessing the activities, the small business is required to recognize the activities that make up the direct relationship with the tax incentives. It is noteworthy to denote that the activities that make the direct contribution to perform or assessment of the experiment that are most likely to meet the requirement. In addition to being directly associated with the core research and development there are some activities that the business is undertaken for executing the dominant purpose of supporting the core research and development for the supporting the research and development activities. For a small business to determine the dominant purpose for conducting an activity the taxpayer will be required to consider the necessary purpose of conducting the activity. The taxpayer under such circumstances would be required to take into the considerations the strength of each activity. For a small business the fact that the activity is important for core research and development activities to take place, it is not mandatory to display that it is undertaken with the objective of dominant purpose for supporting the core research and development activities. Additionally, the test will not be satisfied merely because the activities takes place under the close proximity for the core research and development activities. Small business organizations are required to keep the evidence of supporting the decision that is made at the time of conducting the self-assessment activities (Bosenberg Egger, 2017). It is not sufficient for the organization to merely support that the most of the noteworthy purpose in performing the activity was to assist the core research and development activities. The business is required to maintain the documentation which would help in supporting the assessment. Conclusion: On a conclusive note the income tax deductions would be made allowable under the subsection 73A (1) given that the expenditure is not allowable for the small business under any other section of the Act. The essay provides that the research and development tax incentive offers tax benefit to the organizations in minimizing some of the cost of performing the eligible research and development activities. The program of research and development tax incentive is regarded as the self-assessment program. Conclusively this represents that an individual would be accountable for determining whether the business and the RD that a taxpayer is conducting should meet the criteria of eligibility program. Reference List: Barkoczy, S. (2016). Foundations of Taxation Law 2016.OUP Catalogue. Bevacqua, J. (2015). ATO accountability and taxpayer fairness: An assessment of the proposal to split the Australian taxation office.UNSWLJ,38, 995. Bird, R. M., Zolt, E. M. (2014). Redistribution via taxation: the limited role of the personal income tax in developing countries.Annals of Economics and Finance,15(2), 625-683. Bosenberg, S., Egger, P. H. (2017). 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