Written by guest writer Michael Leyland
Do you ever find yourself creating new products, services or processes because the ones available aren’t quite right or will just not do the job? Then you may be conducting R&D!
If you are an Australian company conducting Research & Development (“R&D”) then you may be able to access a range of Government assistance including:
- Refundable Tax Offsets through the R&D Tax Incentive to assist fund your R&D Program;
- Assistance to Commercialise your ideas including advice, loans or grants; and
- Export Market Development Grants to take your ideas to the world.
April is a critical month. Applications for the R&D Tax Incentive close on the 30 April, and it is also a great time to plan for the following financial year.
What is R&D?
The R&D Tax Incentive requires the following criteria to be met:
- Be experimental (think hypothesis, testing and conclusions);
- Be unable to determine the outcome (based on current knowledge from someone in that field without additional testing or trials);
- Generate new knowledge (not just changing the colour); and
- Have the correct documentation (always the catch).
To be eligible you must be conducting R&D activities which are divided into two separate areas; Core Activities and Supporting Activities.
Remember in High School Science when they said to add Compound A to Compound B to see what would happen and you had to write done what you saw and what you did? This is the experiment. Core activities are the same.
Core activities are the experiment you are conducting. What do you believe will occur? How are you going to test it? What are the results? These are all part of the experimental process.
While Supporting Activities are not R&D themselves because we know they will work, they are required to support the Core activity.
For example, in IT development you may need a Graphical User Interface (“GUI”) – you go to the local computer developer and they can whip you up one every day of the week. But if the GUI is required for a system that provides some specific algorithms that no one has done before, it may be a Supporting Activity.
Without the GUI you can’t complete the experiment and is therefore either “directly related” or for the “dominant” purpose of R&D. The costs related to the GUI may therefore be claimable.
Items that may be claimable under the R&D Tax Incentive can include:
In order to start the R&D process you must have incurred at least $20,000 in eligible expenditure on eligible activities. In plain speak; you must have spent at least $20,000 on the sort R&D activities that would be claimable under the incentive.
If you think that you may have spent $20,000 on activities that may be R&D related it is worth having a confidential chat with the team. If you think you have spent $20,000 chances are you have probably spent more and could claim more.
The most complicated part of the process is the documentation – that’s because you have to deal with two Government Departments:
- R&D Application – AusIndustry; and
- R&D Expenditure – ATO.
AusIndustry is in charge of confirming the activities are R&D related and what you are doing is new. The ATO on the other hand is checking that you can identify the costs that are related to R&D activities.
AusIndustry Documentation – should include project plans, meeting minutes, and records of trials including failures. ATO Documentation – should include timesheets or diary entries by staff, invoices for services and methods of calculating apportionments.
We are seeing more audits by the ATO in relation to claims under the R&D Tax Incentive due to the higher levels of claims being made. The most common downfall is the level of documentation held and where people self-assess they often make mistakes in this area.
Don’t be put off by the level of work required, the R&D Tax Incentive and the other Government Assistance is an invaluable tool to assist your business grow and succeed. Planning and documentation is the key to a successful claim and to maximise its benefits, and we can help you get there.
We can ensure that you are on the right track to obtain all of the benefits to which you are eligible.
Please contact us to determine if you may be eligible.
Principal FCRS Taxation Services
M: 0403 080 308