The R&D Tax Concession is available to all Australian companies, across all industries and has no limit to the amount that can be claimed in any given year.
It is by far the largest program in this country that supports industrial R&D and Innovation. It is only one of few instances where the government is giving money to private business.
Under the program, eligible R&D Activities attract a tax deduction of 125% on every dollar spent. Given the current 30% corporate tax rate, that’s additional 7.5c in every dollar that the company can offset against their tax liabilities…. or $75,000 in every $1,000,000 spent. Or in other words, a 7.5% return on investment after interest and tax. And that’s a lot of widgets to make and then try to sell to get such a return on investment.
In fact, close to a billion dollars is diverted to this program each year by the government. And there are only around seven thousand companies claiming throughout Australia. How many hundreds and thousands of others are missing out?
At Saving Point we take the complexities out of your R&D Claim process. With our rigorous approach, depth of experience and commercial attitude, we help add more cash to your bottom line.
How to claim the R&D Tax Concession
To claim the R&D Tax Concession (or the R&D Tax Offset) you must register your eligible R&D Activities with the government within ten months after the end of the financial year. In other words, if the company’s financial year ended on June 30, 2010 it has to register before April 30, 2011.
The R&D Costs go into the company’s tax return and submitted to the ATO. Just like the rest of the tax return, it’s done on a self-assessment basis. But you have to know what activities and costs are eligible to claim. When claiming the R&D Tax Offset (see below), you must register the activities before submitting your tax return.
What if the company is in a tax loss position?
If the company is in a tax loss position, then the R&D expenses are carried forward to the following year and are offset against any tax paid.
The government has also made provisions for smaller companies that are in a tax loss position through theR&D Tax Offset. From the 2009-10 financial year, a company that has an annual group turnover of less than $5 million and R&D expenditure of less than $2 million can apply for the R&D Tax Offset. Basically, instead of carrying forward the R&D expenses, you can cash them out immediately. And for $1 million spent on R&D, that’s a cash benefit of up to $375,000, depending on the profit position and other tax liabilities. This would be the only one of few times the ATO will actually be writing a cheque to the company.
So what are the eligible R&D Activities?
Simply, R&D activities are those that require you to solve technical problems in a structured way to overcome some technical hurdles or achieve outcomes in an innovative way.
Or as the legislation defines it, eligible R&D activities are those that are conducted:
- for the purpose of acquiring new knowledge OR for the purpose of creating new or improved products, processes, devices, materials or services;
- in a systematic, investigative and experimental manner.
These activities must involve either innovation or high levels of technical risk.
That is, if you are developing a novel application or you have no certainty how to meet the development criteria on the basis of current knowledge and experience you have a fairly high chance of satisfying the R&D definition.
Other activities that support the R&D work can also be claimed, but actually don’t have to involve innovation or high levels of technical risk.
Examples of these activities include:
- engineering design
- industrial design
- production engineering
- operations research
- mathematical modelling
- software development
- the development and construction of prototypes
- test work undertaken on those prototypes
- the cost of building and operating pilot plants
- testing of R&D on a small and production scale
Just think about how much of this type of work is done in companies across Australia…
And what costs can be claimed?
The costs that can be claimed for R&D activities include:
- Salary & wages
- Operating costs
- Production costs during trial
- Consultants or contractors
- Payments to various research agencies and laboratories
- Depreciation on capital assets
- Plant leasing
As with any other tax matters, records must be retained to prove that these costs were actually incurred. Examples of records include time sheets, lab and trial logs, invoices, research reports, photographs, etc.
Company must also keep an updated plan of all R&D projects to be able to claim.
Is there anything else to watch out for?
The R&D activities have to be done on your own behalf, and not on the behalf of other parties such as your customers, suppliers or external consultants. Specific guidelines are available to resolve this issue.
Some activities are specifically excluded and careful consideration must be given whether they can be claimed. There are also special provisions for software development. The treatment of certain costs, such as input into production or feedstock is a lively issue.
The exploitation of the R&D must be to the benefit of the Australian economy and there must be adequate Australian content. Also, the ability to claim the R&D expenditure incurred overseas is limited (10% rule applies in some cases).
R&D 175% Premium Tax Claims
This tax concession is available to those Australian companies that are increasing their R&D expenditure and who have a three-year history of registering the 125% Tax Concession.
That is, if the company’s previous three year average is $2,000,000 and this year the research and development spend was increased to $2,800,000, then this additional $800,000 can potentially yield a $400,000 cash return on top of the standard 125% claim. This calculation is done on a company group basis and can be rather complex depending on the group structure during the relevant periods.
How can Saving Point help?
We will walk you through the whole claim process, identifying all eligible R&D activities and costs, ensuring that all exclusions, limitations and grey areas are thoroughly investigated, explained and resolved.
We will complete and submit all the required paper work on your behalf, provide you with all the relevant information for your reporting and audit needs, and ensure that the records and plans are maintained to substantiate the claim.
And in the event the government chooses to review your claim, we will be there for you, assisting in every step of the way.
We will also advise you on the operation of the new that is set to replace the existing regime in the near future.r&d tax credit
For further information please contact Saving Point on (03) 9555 3551 or send us an email on