Are you struggling to find the cash for your business’ R&D?
Does your R&D take last place to your day-to-day business cashflow?
Recognising the importance of innovation to the growth and prosperity of small and medium business, the Federal Government has introduced a Research and Development (R&D) Tax Incentive to enable SMEs to invest in crucial research and development.
Businesses no longer need to drain precious day to day cashflow to support business innovation and growth.
What is the R&D Tax Incentive?
The R&D Tax Incentive is a Federal Government program aimed at incentivising Australian companies to conduct research and development activities onshore.
The R&D Tax Incentive is retrospective in the sense that the financial year needs to have come to an end in order to be able to commence the application process. As such, for companies with a 30 June financial year-end the lodgement period opens on 1 July.
The R&D Tax Incentive is an annual process, and companies need to apply each financial year that they would like to make a claim. The minimum R&D expenditure required in order to claim is $20k.
What is R&D?
Research and development, within the confines of tax law, is considered to be the generation of new knowledge through the design and development of new or improved materials, products, devices processes or services.
Furthermore, the R&D activities must be experimental activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work.
Simply put, R&D is considered to be experimental activities that are conducted for the purpose of generating new knowledge. As this term is relatively broad, R&D can be applied to many different industries including information and communications technology, life sciences, fast-moving consumer goods, engineering, etc.
Why claim the R&D Tax Incentive?
The R&D Tax Incentive provides a substantial cash benefit to companies conducting Australian-based R&D activities. The program works on a two-tiered basis so the majority of the benefit flows through to SMEs.
For companies with an aggregated turnover of less than $20 million, they are entitled to a 43.5% refundable tax offset. This means that if a company, for example, has $200k of eligible R&D expenditure, then they will be able to receive an $87k refundable tax offset.
This $87k refundable tax offset first gets used to pay any tax owing to the ATO, with the remainder cashed out as a refund. Please note that if the company is in a tax loss position then the full $87k is cashed out as a refund upon processing of the company income tax return.
For companies with an aggregated turnover of greater than $20 million, they are entitled to a 38.5% non-refundable tax offset. This means that if a company, for example, has $200k of eligible R&D expenditure, they will have $77k reduced from its tax bill.
However, if the company is in a tax loss position, then the $77k is carried forward to future income years and is used to offset against any future tax payable.
As you’d expect when applying for Government funding, the eligibility and application process can be complex.
And whilst the R&D Tax Incentive is aimed at onshore R&D, there are certain circumstances under which offshore R&D activities are eligible for the program.
If you’d like to discuss your business’ eligibility for the R&D Tax Incentive or have any questions, contact the BridgePoint Innovation Advisory team on 1300 656 141.