Here is a quote form the BDO website in this issue: Q. How do...

Here is a quote form the BDO website in this issue:

Q. How do you think the ATO will target companies for potential audits?

I would be looking at the profit and loss of claimants’ annual financial accounts or company reports.
For some enterprises, particularly startups and junior explorers, there may be no other revenue or income reflected in their accounts, so when you review the financial reports and cash operating statements, the R&D line item stands out because there’s nothing else around it.
From there, it’s a simple extrapolation to see if a taxpayer is claiming a reasonable amount. Say a taxpayer receives a refund of $450,000 and has only a million dollars incurred in expenditure for the full year. This means that the company has claimed every dollar it’s spent in that year as eligible R&D - this might well be accurate but it will also serve as a red flag if it’s not a correct reflection of the industry or that particular enterprise.
Additionally, after a series of audits, the Commissioner may form a view that some advisers may have a greater fail rate than others. And then that will promote the next level of interrogation, to particular clients and cities, or specific advisors to certain industries.
The Commissioner might also look at how companies paid their tax advisors. If you pay on a time and materials basis, such as per hour, that could be viewed more favourably than someone paying on a success fee basis. It’s not uncommon for agents to take 20-30 per cent of the cash rebate as their fee, which the ATO may view as an incentive to boost that claim as much as possible.

the link is:

http://www.bdo.com.au/en-au/insights/articles/tax/how-safe-is-your-research-development-claim-a-q