The R&D Tax Concession administered by Ausindustry provides around 4000 Companies $500m per annum.
“Most Australian Companies are missing out on the opportunity of getting substantial R&D Tax Concessions on Research and Development Projects”, says BSI R&D Director, Mick Lynch. "Over the years we have identified many projects that are eligible R&D projects, where Developers, Executives and Accountants were not aware that their projects are indeed eligible for the
R&D Tax Concessions and R&D Tax Offsets.”
Lynch and his team have successfully assisted many Companies maximise Federal Government incentives on innovation, such as the R&D Tax Concession, the R&D Tax Offset and the 175 per cent Premium (Incremental) R&D Tax Concession. Lynch and his team have identified eligible R&D expenditure of between $100,000 and
$10 million, which has resulted in effective "cash refunds" of
between $30,000
to $900,000 for Companies
There have been preconceived notions that in order to qualify an innovation or a development needs to be a world first. That is not necessarily the case, says Lynch. There has also been a tendency to associate R&D with white coats, and laboratories, rather than with day to day projects and innovations in the workplace.
175% Tax Concession
Companies may be entitled to claim a 175 per cent income tax deduction to the extent that their current year R&D expenditure exceeds the average of their R&D expenditure in the preceding three years. To qualify for the 175 per cent incremental R&D tax deduction, a Company is required to demonstrate that it in fact has a three-year history of making R&D claims.
Companies that have not previously taken advantage of the R&D Tax Concession should consider lodging an R&D claim for the
June 30, 2005
financial year, to at least establish the first year of their three-year registration history. Such claims must be lodged by
April 30, 2006
. "There is a window of opportunity for a Company who has even done a little R&D to lodge an application," Lynch says. "It all depends on the profile. Some companies might never have lodged, others might have lodged one year; but for most of them this is something they should do immediately."
In addition to the cost of the project, Companies may also be eligible to claim the costs of supporting activities, provided they can demonstrate a nexus between the supporting activity and the core activity involving innovation or technical risk. This means routine activities such as attending training programs or an overseas conference to obtain relevant knowledge for input into an Australian R&D project can qualify for the concessions deduction.
The R&D Tax Rebate/Offset – “Real Cash Back”
From July 1, 2002, a small company rebate entitles company groups with tax losses and a turnover of less than $5 million and R&D expenditure annually of less than $1 million to take their R&D tax benefit by way of a cash grant of “37% of its R&D Tax Claim” rather than the R&D tax deduction. This will be of particular benefit to IT and Biotech start-ups, which often do not become tax payable for many years and therefore in the past have seen little value in claiming R&D tax deductions that might only increase carry-forward losses.
Companies need to plan the projects with the rebate in mind
. There are many ways for maximising entitlements at the outset of the project. People involved in the business plan or project plan should seriously evaluate whether they can get a government concession or incentive in respect of their proposed investment.
Opportunities may be lost by waiting to determine what is eligible at the end of the financial year, when the accountant lodges the Companies Tax Return. Often the accountant might not necessarily appreciate the intricacies of a project and might regard it as a fairly routine project rather than one involving research and development. They would be relying on the developers to say: ‘This one really is an innovative project', or “We are taking a risk in this area'.
Many developers do not perceive that what they are doing represents a form of technical risk. Lynch says that his team are well placed to identify the potential opportunities to claim, as his team incorporates engineers, scientists, entrepreneurs and accountants.
A Company needs to be clear who owns the intellectual property arising from the
project or development. The concession precludes two companies from making an R&D claim with regard to the same project. As a rule, it is the company that owns the intellectual property and bears the financial risk of the development that should make the R&D claim.
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