Alan Baghdasarayan recently answered questions around Government Grants & Incentives (including R&D Tax Incentives) at a Private Label Manufacturers Association of Australia and New Zealand (PLMA) conference.
Are there any requirements from the ATO regarding the justification of costs?
Underpinning the Australian R&D Tax Incentive is the requirement that companies keep on file documentation used to substantiate its R&D claim. This includes documentation that can:
- Substantiate that the R&D activities took place
- Evidence that the costs were incurred
- Provide a link between the costs that were incurred and the R&D activities that took place
Please note, supporting documentation is not lodged as part of the R&D Tax Incentive claim. It is only provided to the ATO or AusIndustry in case of a review.
For example, with contractor costs.
Contractor invoices that reference the scope of works being conducted can be utilised to evidence the costs being incurred and the link between the costs and activities. The scope of works/contractual agreement, along with email correspondence and test documentation etc. can be used to substantiate the R&D activities that have taken place.
In relation to salary and wages, timesheets are the standard of excellence to illustrate the activities that took place. The timestamps can be used to calculate the portion of R&D salary and oncosts included. In the absence of timesheets, companies could use employment agreements, job descriptions, diary entries, meeting minutes, etc. to prove the activities were conducted.
Can R&D expenditure be claimed as a deduction as well?
No – R&D expenditure cannot be claimed as a normal deduction because the R&D expenditure generates a below the line offset of 43.5% or 38.5% (depending on the aggregated turnover of the claimant). If the R&D costs are claimed as a deduction, then the company is essentially receiving a double benefit. There is an add-back mechanism in the tax return which prevents the company from receiving a double benefit.
What is the lead time for submission?
From starting an R&D claim to finishing everything ready for lodgement takes 4 weeks. After this, the timing comes down to how quickly the ATO processes the tax return. At a high level, the ATO takes on average 30 days to release R&D refunds.
Can overseas costs be claimed?
Overseas costs can only be claimed if a company applies for and receives an Advance Overseas Finding from AusIndustry. The conditions that must be met in order for an overseas activity to be included in the R&D claim is as follows:
- Overseas activity must be covered by an Advance Overseas Finding
- The overseas activity has a significant scientific link to one or more core R&D activities
- The activity cannot be conducted solely in Australia because conducting it requires access to a facility, expertise, or equipment that is not in Australia; conducting it in Australia would contravene quarantine law; conducting it requires access to a population of living things not available in Australia; or conducting it requires access to a geographical or geological feature not in Australia
- The total amount to be spent (actual and reasonably anticipated) in all income years on the overseas activity is less than that on the Australian R&D activities
Export Market Development Grants (EMDG)
How does EMDG work for online retailers?
The EMDG is not specific to any particular type of industry.
The 8 categories of expenditure for which you can claim include;
- overseas representatives
- marketing consultants
- marketing visits
- free samples
- trade fairs
- promotional literature and advertising,
- inbound overseas buyers
- and overseas IP.
In saying this, online retailers could potentially include costs related to Google AdWords and other forms of marketing spend related to export market development activities.
Accelerating Commercialisation (AC) & Other Grants
Can I claim just one grant?
The various grants and incentives that are available are unique in that certain activities, and therefore specific costs can only be included for each grant. As such, a company can claim numerous grants and incentives. For example, a company can claim the R&D Tax Incentive when designing and developing its new technology, claim the EMDG when trying to establish an export market, and the AC Grant when attempting to commercialise its novel technology.
When should a company apply for the AC Grant?
Applications for grants should be made prior to undertaking the activities
Will my accountant know about these grants?
The government grants and incentives space is a very specialised area. It is rather difficult for a tax accountant to be across this niche area of tax. As such, specialist government grants and incentives advisors are your best bet in terms of staying ahead of the curve and maximising the government benefits available.
As mentioned, unravelling the complexities around the R&D Tax Incentive and other grants available to Australian businesses is a specialised field. The BridgePoint Group Innovation team specialises in this area. If you have any questions or need to start a lodgement process, then please contact us.
Call our North Sydney office on 1300 656 141 or email our head of Innovation Advisory, Alan Baghdasarayan – Alan@bridgepointgroup.com.au.