If you are an Australian company eligible to pay tax, and you are manufacturing or developing new or improved technical services, then you may be eligible to make a claim for the R&D tax incentive.
The R&D tax incentive is accessed via your company income tax return. It operates by enabling you to gain a credit on your tax payable, or, if your turnover is less than $20 million per year and you are in tax loss, to access up to 45% of your eligible R&D expenditure as a tax refund. This is uncapped.
The first step in claiming the incentive is to determine whether you are undertaking eligible R&D activities. There a number of ways that you can do this, starting with the information available on the AusIndustry website. Here you will be able to find program information, industry sector guides and an R&D tax incentive calculator. You can also check with your company accountant or with one of the many specialist R&D tax advisors. Often specialist advice is helpful to establish good practices in record keeping and in determining eligibility of both R&D activities and R&D expenditure.
To claim the incentive, you need to register your R&D activities with AusIndustry within 10 months of the end of the final year. This is done via an online form that asks for company financial information, project expenditure and a description of project activities focusing on new knowledge and experimentation. Once lodged, you can expect to receive a registration number from AusIndustry within a few weeks. This does not mean that a determination has been made that your R&D is eligible. This is a self-assessment program, and AusIndustry will undertake follow up with a proportion of claimants, either on registration, or post-registration. The registration number is required to lodge an R&D tax incentive schedule along with your company income tax return.
An R&D tax incentive schedule can be downloaded from the Australian Tax Office website, or provided by your accountant or R&D tax advisor. The schedule asks for summary financial information about R&D expenditure covering salaries and wages, contract expenditure, depreciation and a range of other relevant categories of expenditure. Information on what constitutes eligible R&D expenditure can also be found on the AusIndustry website.
One of the most crucial aspects of accessing a compliant incentive claim is keeping contemporaneous and detailed company records establishing that you have undertaken R&D activities, and financial records that show a nexus between the expenditure and the R&D activity. As with other aspects of the income tax return, although it is self-assessed, it remains vitally important that you can establish that the activities took place and the expenditure was incurred in the year of claim.
The incentive program is a very generous program, and although at first glance it may appear a daunting task to make a claim, once underway, it is possible to put systems in place to ensure that ensure that you are properly capturing the relevant data, both technical and financial. The benefits by way of a tax refund or reduced tax payable are a very valuable incentive to innovate in your business.
Melanie Reen is managing partner of Michael Johnson Associates, a specialist R&D Tax Incentive firm.