With the recent overhaul of the Research and Development (R&D) Tax scheme, there has never been a better time for small companies to innovate through conducting R&D activities. The new R&D Tax Incentive offers small companies a 45% refundable tax offset for eligible R&D expenditure. This can result in a significant cash refund for companies which can be vital for their ongoing success.
When you think of research and development, many people immediately imagine a group of scientists in white lab coats, hunched over a bubbling test tube of some unknown substance. This scene is not wholly indicative of what constitutes R&D however, and some companies may be conducting eligible R&D activities without even realising it.
The R&D Tax Incentive program is open to all sectors, be it a manufacturing business developing an improved production process, an engineering firm designing an innovative construction system or a software company creating a better business portal. Companies just need to be conducting experimental activities that employ the scientific method for the purpose of generating new knowledge. This new knowledge can be in the form of new or improved materials, products, devices, processes or services.
WHAT DO I NEED TO DO?
Aside from actually conducting eligible R&D activities, a major requirement of the program is that companies must be able to show, via contemporaneous documentation, that they conducted these activities and they incurred eligible expenditure relating to them. As the program operates on a self assessment basis, claimants are responsible for maintaining records to support their claim.
These documents must address the state of knowledge or technology that existed when the R&D was undertaken, what new knowledge was sought through the R&D and evidence to show this knowledge or information was not already publicly available. Documents that detail the experimental process that was undertaken should also be prepared and retained. Maintaining high quality contemporaneous documentation is advantageous to companies as it will minimise costs in the event that the company is selected for a compliance review.
WHEN WILL I GET MY MONEY?
Companies must lodge their application within 10 months of the end of the financial year in which they conducted their R&D activities. After a company has registered, they complete the R&D Tax Schedule which is included as part of their normal tax return and any offset or refund is dealt with in the usual way.
It is worth noting that amendments to the Taxation Administration Act 1953 have provided the Commissioner of Taxation with the discretion to retain certain refunds in order to undertake integrity checks on claims. In such a case refunds may be delayed.
To find out more about this benefit, contact Michael Lynch at BSI Innovation, mlynch@bsi.com.au or call 0414 225 995.