The R&D Tax Incentive can be quite complex and often misunderstood. Companies are not always aware that they can claim. In today's blog we speak to R&D Tax Incentive expert Sameer Kassam, a Partner from CharterNet who explain the ins and outs and what to watch out for.
The R&D Tax Incentive applies to companies incorporated in Australia with eligibility centered around new knowledge and experimentation. For companies with turnover of less than $20,000,000 and who qualify for the 27.5% tax rate there is a minimum cash benefit of 16.0c in the dollar (maximum 43.5c) and the Application must be lodged with AusIndustry within 10 months following financial year-end. It can include salaries & wages, contractors, materials and overheads.
Figure 1: Agriculture is often an industry that qualifies for the generous R&D Tax Incentives.
Sameer Kassam from R&D Tax Incentive experts CharterNet says that while the incentive can be very helpful for SMEs, many (including their business and tax advisors) do not understand that they might be eligible for the cash incentives and so sometimes miss out.
"Many companies often attempt to develop new materials, products, devices, processes or services as part of their daily goal of bettering their business without even realising that possibly they can apply for the tax incentive. You don't have to have people in science coats in a lab developing the next big thing such as wi-fi to necessarily qualify." he says.
Sadly, Kassam estimates out of the millions of Australian businesses currently eligible for the Government’s Research & Development Tax Incentive, a whopping 70 percent haven’t applied for it. "It's a shame many who qualify aren't aware they can apply and so enormous amounts of money are left on the table that could be used for further innovation and growth."
Here is an overview of the incentive that Kassam says all SMEs should be aware of to determine whether they might have a claim or not.
At a high level, if you answer "Yes" to the following there is potential for an R&D Tax Incentive claim:
- Are you a company incorporated in Australia?;
- Are you attempting to develop a new/improved materials, products, devices, processes or services?
- Are you conducting a systematic progression of work for the purpose of creating new knowledge?
- Have you spent at least $20,000 on the R&D Project?;
- Do you own the resultant IP?
- Were the activities conducted in Australia? (note some overseas activities may qualify in certain circumstances).
2. Types of Activities
Generally there are two types of activities:
- Core activities which are conducted for the purpose of generating new knowledge;
- Supporting activities which are conducted to support the core (e.g. literature searches, project planning etc);
3. Typical Industries
Whilst not an exhaustive list, typical industries include:
- agriculture and aquaculture;
- mining and mining services.
4. CharterNet's 5 Phases For R&D
Kassam says that CharterNet works through a 5 Phase Plan with the advisors and their clients in order to determine whether a claim may be in available:
- Phase 1: A Cost and obligation-free R&D assessment;
- Phase 2: Preparation of necessary R&D Tax Incentive supporting documentation;
- Phase 3: Calculation of R&D expenditure;
- Phase 4: Registration with AusIndustry and preparation of R&D Schedule for the income tax return;
- Phase 5: Assistance with AusIndustry/ATO reviews and audits.
The big challenge with any business activity is for SMEs and their tax advisors to be aware they may have a claim when assessing the content of what has been discussed above. If there could be a possibility of an R&D claim it will be generally be most beneficial to both maximise and get your claim correct by an advisor (such as CharterNet) that specialises in the R&D Tax Incentive area.
If you would like further information, please do not hesitate to contact us.