There’s a lot of talk about “innovation” at present and the government has made major announcements on innovation in recent months.
The Australian government’s taxation package offers significant encouragement to companies to undertake Research and Development (R&D). You don’t need to have laboratories or research assistants employed in your organisation to be able to claim R&D. Quite simply you need one or more of your team involved in performing 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.
To be eligible to claim an R&D Tax Offset, you need to ensure you’re operating your business as a company. If your company is trading at a loss, then the rebate is effectively worth 45% of the eligible R&D expenditure. If your company is trading at a profit, the R&D rebate is 15% of the R&D expenditure (you would already be obtaining the 30% tax deduction for the expenditure in any case).
The figures mentioned above relate to companies with turnovers under $20M. If your company has a turnover over $20M, the R&D rebate is calculated at 40% and there’s no cash payment if the company is trading at a loss. In effect, the extra rebate over and above the 30% income tax deduction amount is 10%.
Commencing an R&D Project
If you’re starting out on a R&D project, it’s necessary to identify the project on which your team is going to be working. You can have as many projects as you like, however it’s best to give them a number and write out a R&D plan, noting what you hope to achieve from your research activity. Then record the time of team members who have been involved in the R&D activity, noting what they did and, at least on a monthly basis, summarise the results that have been achieved at this stage. The research work has to be undertaken in Australia.
When you first start a project, it’s also important that you identify what research you’ve undertaken, to determine that your research project has not already been “discovered” on the basis of current knowledge, information or experience. It’s a good idea to record what research you undertook.
If the project is not successful, that should not prejudice your claim for the R&D rebate, however include in your project notes your comments as to why you believe that this research was unsuccessful.
Making a claim
The minimum expenditure for the R&D rebate claim is $20,000 and a company must register for an R&D claim on an annual basis. This registration is with AusIndustry and must be completed within 10 months of the end of financial year. For businesses with a 30th June financial year end, this would mean that the registration has to be made by the 30th April the following year, or the date of lodgement of the company’s income tax return, whichever is earlier.
If you’re contemplating undertaking a R&D project or believe you have performed R&D activity last financial year, please don’t hesitate to contact us for advice on lodging your AusIndustry registration or setting up an appropriate system to record the eligible R&D expenditure within your business. Speak with your usual Hanrick Curran adviser or call 07 3218 3900 and ask for Jamie Towers.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.