Author: Minna Zhu, Director Date Posted: 1 April 2017
If you run a company that is investing in Research and Development (R&D), and would love to receive the Federal Government’s R&D Tax Incentive to fund your project, here are a few key areas you should focus on in the lead up to end of financial year.
If you run a company that is investing in Research and Development (R&D), and would love to receive the Federal Government’s R&D Tax Incentive to fund your project, here are a few key areas you should focus on in the lead up to end of financial year.
Any activity undertaken overseas is ineligible for the R&D Tax Incentive. However, companies can ask for approval from AusIndustry for certain overseas activities. An application for approval must be submitted before the end of the financial year. This application is referred to as an Overseas Finding application. For a successful Overseas Finding application, you will need to demonstrate the following:
Requirement 1: That the activities could not be undertaken in Australia for a technical (rather than a commercial) reason. This means that either the expertise, critical resource or technology does not exist in Australia. Not just because it is cheaper doing the work overseas. Some examples would be:
Requirement 2: Costs of the overseas activities are less than 50% of the total project costs.
Requirement 3: For overseas activities undertaken in 2017, you will need to lodge an application by 30 June 2017 (assuming you have a 30 June financial year end). An Overseas Finding covers the activities for 3 years initially and then potentially the life of the project assuming the facts have not changed.
Payments to associates is a tricky area that a lot of small companies are affected by. It’s also an area of focus for the ATO, so it is important to get this right.
This rule comes into play when you have costs incurred to an associate. For this category of cost, the cost needs to be both incurred and paid within the year for it to be eligible. Some potential associates would include Managing Director/CEO, significant shareholders and companies that have the same shareholders. This is an area you should definitely speak to your advisor about before year end.
Documenting your R&D should be a year-round activity. However, towards the end of the year, you should review your records and update if needed. Record keeping is heavily emphasised by both AusIndustry and the ATO. Good R&D record keeping should include the following:
If you ever get reviewed, you will be expected to be able to provide these records as evidence of your R&D activities.
An Advance Finding is when you apply to AusIndustry to get confirmation that the activities that will be undertaken are eligible R&D activities. This application is submitted in advance of the activities being undertaken which gives a company certainty. Some scenarios where this is useful would be where
It’s important to remember that you don’t have to apply for an Advance Finding. It is a choice to give you certainty if you need it.
The R&D tax incentive encourages companies to engage in R&D benefiting Australia, by providing a tax offset for eligible R&D activities. It has two core components:
Component 1: A refundable tax offset for certain eligible entities whose aggregrate turnover is less than $20 million.
Component 2: A non-refundable tax offset for all other eligible entities.
No news is good news as the 2017 budget did not have any changes to the R&D Tax Incentive. However, there are changes from last year’s budget that will come into play this year
Change 1: Rate of benefit reduced to 43.5% from 45% for component 1
Change 2: Rate of benefit reduced to 38.5% from 40% for component 2
Early planning is key to getting the most out of your R&D Tax claims. Call us on 1300 222 353 or email us at info@consolid8.com.au if you would like to talk to us about R&D Tax Incentive.