The key to strategic decisions – the R&D tax incentive

Smart planning and fully maximising your claim under the R&D Incentive, delivers short term and long term innovation dividends

As savvy SMEs know, Australia’s future prosperity lies chiefly in technology. The more effort businesses put into their research and development activities, particularly in the technology sphere, the better their prospects for growth.

But innovative businesses that access the R&D Incentive are not just helping foster a culture of innovation in Australia – they are enabling themselves to make better informed and more strategic decisions.

The R&D Incentive provides refundable tax offsets for businesses earning under $20 million, which engage in research and development activities, and non-refundable offsets for those with turnover above $20 million. If your turnover is under $20million, the scheme generates a net benefit of 15 cents in the dollar of eligible R&D spend.

Know what to focus on

As a first step, some may need to be reminded of what expenditure they can claim – including salary, wages, contract fees and travel expenditures, (as long as these are tied to R&D). David Gelb, Global Head of R&D Incentives at KPMG, says businesses need to also consider R&D expenditure that may not be obvious – such as client funded endeavours.

Although many businesses are aware of how the R&D Incentive operates, the key is to maximise the associated tax benefit and consider how this directly shapes future decision making. Adopting this approach can make the business lean, agile and better equipped to deal with sudden strategic changes. “We’re always trying to integrate with newer technology and faster methods to prevent software attacks,” says Craig McDonald, Chief Executive Officer of virus and spam filter software group MailGuard.

“And that costs money, time and everything else… In our particular field, software and web security, the landscape is liquid.” An advantage, McDonald says, of using the R&D Incentive is forecasting. The business is constantly able to make sure it stays on top of new projects by being able to hire extra resources when it needs to.

“Anything deductible helps in the sway of projects you want to develop. The R&D Incentive plays a huge part of that.” For example, a technology company can look to include within its R&D claim anything from working on new algorithms, products, app development or new technology.

Ongoing benefits

Tom LeGrice, Chief Executive Officer of pet-sitter finder service Pet Home Stay, says a key benefit of R&D is the rolling nature of the funding. Once a business is able to put some up-front funding in place, the R&D Incentive can act as a benefit every year – as long as the research is maintained and claimed.

“It pays you back year after year, so you’re able to identify the areas where you need attention and focus on those in the next year,” says LeGrice.

“If you have a long term view, you can go through your business and identify…things like people, salaries, the time being spent on particular projects, that you need to make decisions on one or two years out.

“Whether you need to do key product hires, when you can go out and look for investor funding, focusing on R&D incentives gives you a bigger picture.”

Additionally, LeGrice says, if a business requires external funding, having a financial model which includes R&D helps position the business as being in control of its strategic vision.

Successful decisions

Gelb says the truly innovative and successful businesses are able to balance short term and long term decision making by fully realising the tax benefit in the short term; alongside long term investment decisions and business strategy.

“In addition to the cash savings and a cheaper source of capital, by claiming the Incentive a business can benefit from improved cash flow to reinvest in innovation activities, and enhance their business’s prospects of securing capital investment,” he says.

“When companies are selecting which ideas to invest in, consideration of the government incentive landscape, while not the sole determinant, is an important decision point prior to investment in order to achieve a more robust business case.”

Additionally, Gelb says businesses should consider asking for help when it comes to addressing R&D needs. In his experience businesses who self-claim often miss the opportunity to fully realise their full tax benefit.

“We recently identified numerous unclaimed activities within the lifecycle of R&D being overlooked by a technology company developing advanced data processing software solutions. The result was an amendment to two prior claims, doubling the benefit available, and resulting in close to $300,000 of additional cash refunds.”


R&D registrations must be lodged no later than 30th April 2015 if your company has a June 2014 year end. For advice on how to claim or feedback on your R&D Incentive claim contact David Gelb at KPMG, (03) 9288 6160.

KPMG Enterprise

KPMG Enterprise works with established entrepreneurs, business owners, family businesses, local government and fast-growing, dynamic companies to build great organisations. We offer an extensive range of audit, tax, accounting and management consulting services to help clients through every stage of their life cycle, whether starting, growing or exiting their businesses.

Partner content