The R&D Tax Incentive is the government’s way of supporting business talents. As the owner of a business focused on innovation in products, devices, services, materials or processes, the cost and risks associated with R&D would be front of mind. Claiming an R&D Tax Incentive is a way to help offset spend, making sure innovation in your business has support.
The R&D Tax Incentive offset is applied based on company turnover:
- Your business is eligible for a 43.5% refundable tax offset for income years beginning 1 July 2016 if it has a turnover of less than $20 million per annum, provided it is not controlled by income tax exempt entities.
- There is a non-refundable 38.5% tax offset for all other eligible entities. Unused non-refundable offset amounts may be able to be carried forward to future income years.
There are many businesses that are engaging in research and development to grow their companies. In fact, the Australian Government reports that there was an increase of companies registering for the R&D Tax Incentive, with 9.3% more registrations at the end of March 2017 compared to the same time last year.
R&D expenditure registered by large firms (with a turnover of more than $20 million) has fallen by just over 15%. This decline in R&D investment is particularly noticeable in the mining, construction and – to some degree – manufacturing sectors, in line with broader economic trends.
However, it is clear innovation is moving full steam ahead with SMEs across the country – there has been an increase of almost 10% in R&D expenditure registrations compared to the registrations at this time in 2016.
The program is on track to have more than 3,000 new companies this year. Around 90% of the new businesses are small-to-medium enterprises (SMEs) with a turnover of less than $20 million.
An April 2017 Administrative Appeals Tribunal decision provided a timely reminder that companies participating in the R&D Tax Incentive need to be careful to get their applications right because some errors cannot be fixed and it can stop them from getting the incentive. In May 2017, there were also some decisions made that served as powerful reminders that the R&D Tax Incentive is only for experimental research and development activities, and activities that support them in a direct, close and relatively immediate way. It is therefore wise to seek advice on R&D expense claims.
Applications for the 2016/17 financial year can be submitted from 1 July 2017 and eligible refundable tax offsets released after lodging your 2017 Company Tax Return.
For assistance in determining if your expenses are eligible for the R&D Tax Incentive and preparing your application please contact your usual Hanrick Curran Advisor or Jamie Towers on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.