ATO clamps down on dodgy tax advice and its beneficiaries, including tax incentives for early stage investors
The Tax Office’s recent success in protecting the community against bad tax advice https://www.ato.gov.au/Media-centre/Media-releases/$4-million-fine-for-company-promoting-R-D-tax-schemes/ is a timely reminder to early stage investors of the importance in obtaining independent tax advice from an experienced and qualified early stage tax adviser before making any new investment into an early stage innovation company.
Australian R&D Funds and Grants Service Pty Ltd and its director, Lorraine Amede, were prosecuted by the Commissioner of Tax for inappropriate advice to clients and future clients that breached laws applying to Research and Development (R&D) related tax claims, including encouraging clients to lodge overstated or ineligible claims.
The Federal Court found that Ms Amede and her associated company were involved in wrongfully promoting the R&D tax incentives through 10 different schemes resulting in eight clients receiving more than $3 million in unentitled tax refunds.
If an early stage venture capital investor was relying upon this dodgy R&D advice to claim an early stage investor tax offset from the ATO, they would be in for a nasty surprise in the form of tax rebate repayments, penalties and interest.
Michael Hardy, ATO Assistant Commissioner, says individuals who benefit inappropriately from tax breaks will be penalised even if they have taken on bad advice unwittingly.
“(Those who) claim the incentive to which they are not entitled will be caught and held to account for their actions,” Mr Hardy warned.
A qualified, experienced and client-centric early stage tax adviser safely navigates the course for early stage investors wanting early stage tax incentives without nasty surprises after investments are made. Bad R&D advice residing within early stage innovation companies is another minefield that needs to be properly navigated to avoid triggering the ATO’s bomb.
Stephen Crowe, Chartered Tax Adviser, early stage specialist and CEO of ESIC Hub, says taking on poor investment advice or a lack of due diligence on early stage ventures before the time of investing could have serious implications.
“Seeking authorised advice from an ESIC specialist is imperative to ensure that your choice of investment is a wise one and that the venture really does meet ESIC criteria and therefore deliver the appropriate tax breaks on your capital input,” Mr Crowe explained.
“Bad advice or no advice may see you being exposed to riskier investments as well as penalised by the ATO.”
Mr Crowe said that by using an ESIC specialist, investors looking to build wealth through an early stage venture, could access validated ESIC opportunities directly or through managed structures.
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