If you are just starting out in business you may not be familiar with the Research and Development (R&D) Tax Incentive scheme available from the Australian government. Or you may just need a refresher before submitting a new claim. It’s that time of year again where deadlines start to creep up on us, so I thought I’d update last year’s wrap up and share the latest on this subject.
The grants offer help to businesses by offsetting some of the costs of performing R&D. Many startups are not aware of what constitutes as research and development, therefore potentially missing out on a substantial cash injection for their business. If your startups runway is an issue this might be the time to act.
The R&D Tax Incentive currently has two core components:
● 45% refundable tax offset for eligible entities with a turnover of less than $20 million per annum provided they are not controlled by income tax exempt entities.
● non-refundable 40% tax offset for all other eligible entities. Unused non-refundable offset amounts may be able to be carried forward to future income years.
Is my startup eligible to submit an R&D grant application?
R&D projects usually comprise of a set of activities with start and finish dates, undertaken to generate a specific piece of new knowledge. Under the R&D Tax Incentive scheme, eligibility is determined on an activity basis rather than on a project basis. Eligible activities fall into two classes, core R&D activities and supporting R&D activities, both of which can be claimed.
The R&D program has five steps:
1. Access you if you have an eligible entity
You will need to have an Australian company to register and make a claim. There is more about the definition of eligible entities on the Business Australia website.
2. Conduct eligible R&D activities
You will need to write an R&D project plan to support your application. If you haven’t done this before there are various service providers that can help you put this together and ensure that you provide the correct information. Getting the base project plan together is tough for the first year’s claim but once you have this it will form a template for your business to use for subsequent applications.
3. Register with AusIndustry
Companies with an income year of July 1, 2013 to June 30, 2014 who wish to apply for the R&D Tax Incentive for the 2013-14 financial year income would need to have lodged their registration application with AusIndustry by Thursday, April 30, 2015.
4. Ensure your books are in order
I can’t recommend enough the importance of using an experienced bookkeeper who has specific skills in accounting for R&D tax incentives. Your bookkeeper should understand how to structure your company expenses efficiently to help maximise your eligible expenses. If they are coded to R&D linked accounts at the point of entry this should significantly reduce the reporting work at the end of the financial year.
NOTE: Make payments for all eligible expenses in the year of the claim – i.e. before June 30, 2015.
Don’t get caught out with employee super expenses. Although this isn’t due for payment until July 28, you will need to make the payment before June 30 in order to include these expenses in your claim amount.
Get your filing in order. Expense receipts, travel diaries and any other relevant documentation that may be required in the event of an audit to substantiate your claim will need to be kept safely.
5. Lodge your company tax return with the ATO
Talk to an accountant as soon as you make the decision to apply for R&D tax incentives. They will need to ensure your business is prepared to lodge its income tax return.
Timing and preparation can be crucial to your cash flow. If you have forecast an estimate grant payment hitting your bank account by a certain date, be realistic. Ensure everyone involved in the accounting and tech report writing process is aware of your cash flow deadlines.
You can read more by downloading the information pack from the AusIndustry website.
Additionally, you may use the online eligibility tool to assess if your startup qualifies.
NOTE: As part of the 2014-15 federal budget, the government reduced the rate of benefit to all companies under the R&D Tax Incentive, effective from July 1, 2014. The rates of the refundable and non-refundable offsets will be reduced by 1.5 percentage points to 43.5% and 38.5% respectively.
The change will apply for a company’s income years commencing on or after July 1, 2014.