An increase in the red tape burden in applying for research and development grants means for some small and medium size businesses it is no longer worth their while applying.
Under the federal government’s Research and Development Tax Incentive businesses can get a cash refund of up to 45 cents in the dollar for spending on eligible R&D activities.
However, the money is bogged down in red tape after changes were made to eligibility requirements in July 2012.
Paul Brindle, managing director of the tax and accounting service at Thomson Reuters, told SmartCompany he expects to see a strong increase in applications in 2013 due to the increased funding, but says tax advisors may become overburdened with demand and the increased complexities of the applications.
“What businesses are telling us is that it is very hard for them to pull together the relevant documentation to support the R&D tax incentive,” Brindle says.
He says the recent case involving IT company NaughtsnCrosses raised a number of concerns in the industry about the “raising of the bar in terms of the expectations on corporate taxpayers to justify their claims for tax incentives.”
In the NaughtsnCrosses case, the Administrative Appeals Tribunal upheld the Australian Taxation Office’s objection to a claim by NaughtsnCrosses for an R&D grant because the Queensland business did not have the appropriate documentation to support its application.
“The tax office would say the burden has not increased but I think businesses out there are saying the outcome of the NaughtsnCrosses case has increased expectations and most would say the administrative burden has increased,” Brindle says.
Brindle says the impact of the increased red tape is hitting small to medium businesses the hardest and for some it is not worth the time and effort to make a claim.
“It depends how big your claim is, for smaller businesses with a smaller claim resulting in a smaller benefit the administrative burden may not be worthwhile, the administrative cost may outweigh the benefit,” he says.
“For small and medium size businesses in particular, it is a big challenge for them as their claims are less than for larger corporates but the administrative burden is not necessarily commensurate with their claims.”
Brindle says the increase in administration for R&D claims is reflective of a broader trend where the Australian Tax Office is requiring more documentation from SMEs.
“The ATO is, across the board with all taxes, increasing the expectation and [this] is happening at a time when the overall burden on taxpayers is increasing, when the government is trying to plug its budget gaps and is putting pressure on the tax office to focus on tax compliance,” Brindle says.
Thomson Reuters has just launched an R&D tax incentive solution called OneSource in what Brindle describes as a bid to provide “an easier way for businesses to administer and make their claims”.
Nicola Purser, research and development partner at accounting firm BDO, told SmartCompany she has also noted more stringent record-keeping requirements for businesses applying for R&D grants.
“Since the changes, the application form itself is more complicated than it used to be, so it is fair to say some people are looking at it and thinking ‘Is it worth going through the process?’,” she says.
“A core part of our business is helping companies access the grants and it is taking us more time than it has in the past but part of that is getting used to a new system.”
But Purser says for most SMEs it is still worth applying for an R&D grant.
“It’s still very worthwhile for business to make a claim, every business is different and has to make that cost-benefit analysis, but in every case we have looked at it is worth the business’s while going through the application,” Purser says.
“There is a lot of cash available to companies and they should be taking advantage of it.”