Removing the ambiguity around Australia’s Research and Development (R&D) Tax Incentive

msi - r&D1By Matt White, MSI Taylor, Accountants, Brisbane.

The Australian R&D Tax incentive is an easy to access entitlement program that helps businesses offset some of the costs of doing R&D. In essence, the program aims to help more Australian-based businesses do R&D and innovate.

Small business owners and advisers are by now aware of the benefits available under the R&D Tax Incentive.

The 45% Refundable Tax Offset (which in many cases can be ‘cashed out’) should be a crucial consideration for small business cash flow planning – yet many small companies are still missing out on their opportunity to make claims and receive cash refunds due to the perceived complexity and ambiguity surrounding eligibility and the application process.

The new R&D laws (effective from 1 July 2011), introduced a greater emphasis on record keeping and also provided a new definition for eligible activities – as either ‘Core R&D activities’ or ‘Supporting R&D Activities’, where ‘Supporting activities’ need to be either ‘directly related’ or for the ‘dominate purpose’ of supporting the Core R&D Activities.

These new definitions where ambiguous and left many small businesses failing to make R&D claims (and in many cases not receiving a cash refund) even though they are regularly undertaking eligible activities and already have existing documentation practices that satisfy the requirements.

Key concerns were around: How to identify if the activities they were undertaking where eligible? How burdensome is the application process? What are the documentation and ongoing record keeping requirements?

As a result and due to industry, adviser and participant feedback, AusIndustry (the government department responsible for administering the Australian R&D Tax Incentive program – together with the ATO) have released various industry sector guides to help applicants identify eligible activities and understand their compliance requirements.

Released throughout 2012 and 2013, AusIndustry have prepared guidance and case studies for the ICT, Agrifood, Biotechnology, Manufacturing, Energy, and Built Environment Sectors. AusIndustry have also introduced a series of focus and face to face workshops throughout each State and in 2014, will be trialling various e-learning modules in order to reduce the perceived ambiguity and confusion around the R&D program.

To make an R&D Tax Claim (and to potentially receive a cash refund of monies spent) companies must register their R&D activities each income year in which the activities are undertaken.

Importantly, companies that wish to make R&D Tax claims for eligible expenses incurred during the period ending 30 June 2013 must submit an R&D Application with AusIndustry by 30 April 2014.

MSI Global Alliance member firms have assisted 100s of small and large companies (from SME’s through to ASX listed) and across a broad range of industries in identifying and preparing R&D claims as well as helping them understand their compliance requirements.

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