Research & Development Tax Incentive
Is your business operated by a company and does your business undertake the development of new products or new processes?
If you answer yes to both of those questions, your company might be eligible to claim the Research & Development Tax Incentive (“R&D Incentive”). The R&D Incentive can only be claimed by companies and for the most part, by companies that are incorporated in Australia or, if incorporated overseas, are resident in Australia.
The R&D Incentive is an “activity-based”, self-assessed concession, by which we mean it is up to each application to determine their entitlement on an annual basis.
The incentive funded by the Federal Government through the company taxation system and administered by Ausindustry and the Australian Taxation Office. The Incentive system provides either a cash payment or a tax offset that partially recoups the eligible costs of R&D and provides incentive for firms to undertake development of new products and processes.
To claim the R&D Incentive benefit, a company must compile and lodge an annual R&D Application form setting out information about the nature of the R&D undertaken, including sufficient information to show that the R&D was being done to generate new knowledge in the form of a new product or process (there must be a minimum level of innovation); demonstrating that the R&D process was undertaken in a scientific way and showing the technical risks associated with the R&D. The application form also includes details of the costs directly relating to R&D, and certain business overheads. The R&D claim is made in the company’s annual taxation return.
R&D doesn’t have to be done in a laboratory for it to be undertaken in a “scientific way” and in reality, only a small proportion of R&D is done in that setting. Examples of eligible projects include the development of innovative computer software for sale to the public; development of new fertilisers to improve agricultural output; developing a new battery for use with domestic solar panel systems and an engineering firm developing a new production process. However, the range of potential activities is very wide and all too often, firms ignore their entitlement to the R&D benefit because they think R&D must involve staff in white coats within a laboratory setting.
Daynes advisory has specialist expertise in the operation of the R&D Tax Incentive including:
• Identifying eligible R&D activities
• Calculating the eligible R&D spend
• Preparation and lodgement of annual Ausindustry project application forms
• Ensuring that not only are projects eligible but all appropriate records are maintained to support the R&D claim
Daynes Advisory can also assist with the supply of software packages (prepared by a specialist third party), which can assist with the management of R&D projects to ensure that all eligibility and record keeping requirements are met.
This is critical as there are recent tax cases where the claimants have been denied entitlements to significant R&D benefits because their record-keeping did not meet the required standards.
What is the value of the R&D Tax Incentive?
It is an entitlement based incentive arrangement offering tax offsets of up to 45% (43.5% for income years commencing on or after 1 July 2016) of the eligible R&D spend for companies with annual turnover of less than $20,000,000 undertaking eligible R&D activities and incurring eligible R&D costs of at least $20,000 annually. The tax offset may be payable in cash if the claimant company has tax losses.
For companies with turnovers of $20,000,000 or more the R&D tax offset is 40% (38.5% for income years commencing on or after 1 July 2016) but for these claimants this offset can’t be claimed as a cash offset.
Claimants are required to lodge an annual registration application with Ausindustry – the deadline is 30 April for taxpayers companies with a 30 June year end. This deadline is final and while extensions are possible, they are granted only in the most extreme circumstances.
Daynes Melbourne Office