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Key global innovation trends have been presented in the Global Innovation Index 2020 released in September this year. This report launched in 2007 and is published by the World Intellectual Property Organization, INSEAD and Cornell University, ranking over 130 economies. These reports are helpful in forming an outlook for the impact of COVID-19 on R&D spending, particularly when compared to GFC recovery from 2009.

Despite the difficult economy, certain industries have been increasing their R&D spending, for instance software and hardware companies, who accounted for around 38 percent of total business R&D spending in 2018-19. Increased digitisation will be essential during the pandemic as lockdowns are enforced and physical movement is restricted. The healthcare industry are also increasing their R&D efforts, which have been critical during the pandemic in terms of vaccine development and more.

Industries that have not held up so well include real estate, household goods, travel and leisure and professional services. While these areas tend to have a lower amount of R&D in general, innovation and digitisation will be required to recover from the crisis.

Government stimulus packages for innovation were vital to stimulating R&D and helping economies recover faster in 2009 and this will be the case again now. Governments are already implementing measures including France’s US$8.4 billion digital investment and $13 billion R&D stimulus packages and Germany’s $58.8 billion package for future-focused technologies. Incentives such as these, along with temporary measures such as accelerating R&D tax credit payments, will be key to economic recovery and growth in future years.

Source: Strategy+Business

Companies seeking to claim overseas expenditure, or seeking an advance determination on eligibility of a project must lodge a finding Application period to the end of the financial year in which the activity is first conducted (i.e. 30 June for activities in FY20).

During a finding process, AusIndustry provides a binding determination of eligibility, and an enormous amount of work must be put into such applications, including the collation of a vast amount of supporting evidence.

There is no provision with the relevant legislation and guidelines allowing for extensions to be granted for finding applications, and specifically, Part 3 of the IR&D Decision Making Principals do not apply to Advance and Overseas Findings.

This means that such findings must be submitted by 30 June.

AusIndustry have however announced this week that due to the COVID-19 disruptions they will accept a ‘provisional’ Advance or Overseas Finding application for the YE 30 June 2020, containing a lower amount of information and supporting evidence than would normally be required.

The minimum details required in a provisional Advance or Overseas Finding application are:

• Company contact details;
• Descriptive name/title of claimed R&D activities.

Companies submitting a provisional Advance or Overseas Finding application, must then submit the balance of information and supporting evidence by 30 September 2020.

Companies will not be able to claim any overseas R&D Expenditure in FY20 until such time as AusIndustry receive all relevant information for the finding application, complete their assessment, and issue a positive finding.

More information is available here.

Our thoughts are with those who are directly impacted by the Coronavirus crisis.

The government has announced a wide variety of stimulus measures to assist business cope with the Coronavirus situation.

The stimulus offered is from multiple levels of government and for multiple purposes.

A summary of the measures is available here.

AusGrant has taken measures to protect our staff and clients, and will be fully functional throughout this crisis to support the needs of our stakeholders.

The deadline for R&D Applications is specified in the INDUSTRY RESEARCH AND DEVELOPMENT ACT 1986 as 10 months after the end of an income year. The statutory deadline for companies to register R&D activities conducted during the year ended 30 June 2019 (i.e. last financial year) is therefore 30 April 2020.

AusIndustry have recently announced that:

• If a company’s R&D application for the YE 30 June 2019 income year cannot be made by the application deadline (30 April 2020) due to the effects of the COVID-19 pandemic, AusIndustry will allow the application to be made by 30 September 2020, without needing to request an extension;
• If a company’s R&D application for the YE 30 June 2019 is unable to be lodged by 30 September 2020, the company may request a formal extension of time;
• A company’s registration number is still required when lodging the R&D Schedule with the ATO;

This means that if a company seeks to derive their tax benefit arising from their claim for YE 30 June 2019 (by way of a cash refund or a reduction in balance of tax liability) in the immediate term, they must still first register the R&D Activities with AusIndustry, and would not be able to defer registration until September.

Where it is possible to do so, we would still recommend that companies still aim to lodge the R&D Applications for the YE 30 June 2019 ASAP, so as to not defer any R&D Tax benefit that may be accrued to the company for this period.

International Indigenous Football Foundation Australia, now in liquidation, was fined over $4 million for encouraging eight of its clients to apply for the R&D tax incentive, in which they were ineligible. The Federal Court found the company to have breached promoter penalty laws and action was taken against 10 claims that amounted to over $3 million in R&D tax refunds.

The ATO is working to recover the money and the eight companies have also been penalised in addition to repaying the money claimed.

Be wary of who you approach to assist with your R&D claim. With tax law, the company will also be penalised, even if they are using an adviser. R&D claims are being heavily scrutinised and fraudulent claims have resulted in jail time. Will Day, the ATO Deputy Commissioner, has stated that misuse of the R&D tax incentive is a top priority for the Serious Financial Crime Taskforce.

The R&D tax incentive application is complicated and many businesses are not sure which parts of their project are eligible to claim. The eligibility criteria is not simply black and white. For instance, the creation of new knowledge must involve new knowledge that can be applied on a global scale as opposed to being location specific. Another common example includes software companies using existing code and APIs to develop a custom solution, rather than developing their own. It is recommended that businesses look for an established R&D specialist to assist with their claim, rather than try to understand everything and claim themselves.

Ausgrant are R&D tax incentive experts and take a conservative approach. We will advise the client of any activities we deem to be ineligible. Contact us for a free assessment. There is minimal risk to you, as you only pay for our services after you have received your refund.

As April 30 was a Saturday this year, companies are still able to lodge the registration of their R&D activities today (Monday 2 May 2016). To claim the incentive, you need to register your R&D activities with AusIndustry within 10 months of the end of the final year. For most companies operating in June – July fiscal year, this date traditionally falls on the April 30 deadline. However, as noted above, since this was on a Saturday, companies are able to lodge on Monday 2 May 2016.

If you intend to register and claim the R&D Tax Incentive, you must keep adequate records to demonstrate to the ATO and AusIndustry that you did carry out eligible R&D activities and that you did incur eligible expenditure. With higher levels of review activity and scrutiny by AusIndustry and the ATO, it is vital that companies are able to substantiate their R&D claims with contemporaneous documentation.

Nonetheless, registration is the critical first step in accessing the R&D Tax Incentive. In order to be able to claim the benefits of the R&D Tax Incentive, a company must register their R&D activities with AusIndustry. These activities can either be classified as core R&D activities or supporting R&D activities. Core R&D activities are the experimental activities undertaken to generate new knowledge. Whereas, supporting R&D activities are the activities that relate directly and support your core R&D activities (e.g. literature searches).

By capitalising on the opportunities that the R&D tax incentive offers, companies can produce generous tax savings, including generating cash for their past and future investments or developments. In addition, there is no cap on the level of eligible R&D expenditure that a company can claim. Companies with annual turnover of less than $20 million can claim the 43.5% tax offset on all their eligible expenditure. Those with annual turnover of more than $20 million can claim a 38.5% tax offset on all their eligible expenditure.  However, to claim these benefits a company must register their activities by today. Don’t miss out on generating potential tax savings for this financial year.

AusGrant specialises in the R&D Tax Incentive – contact us today to discuss your eligibility and learn more about how the R&D Tax Incentive may benefit your business.

Salaries, wages, income or pay – whichever title takes your preference, the question remains the same. Are salaries eligible when claiming the Research and Development (R&D) Tax Incentive?

In short, the R&D tax incentive is designed to encourage firms to conduct research and development and is accessed via your company income tax return. It operates by enabling you to gain a credit on your tax payable, or, if your turnover is less than $20 million per year and you are in tax loss, to access up to 43.5% of your eligible R&D expenditure as a tax refund. However, determining eligibility of both R&D activities and R&D expenditure is often where clients begin to get confused.

It might surprise some that salaries (including management and support staff) are an example of R&D Expenditure. However, it is vital to understand that Directors fees are not eligible under the R&D Tax Incentive. As described above, the R&D Tax Incentive can reimburse up to 43.5% of eligible R&D costs. Therefore, if staff are spending most of their time undertaking R&D then an annual salary should definitely be considered.

Fundamentally, salaries as a type of R&D expenditure includes expenditure to the extent that it is incurred on eligible R&D activities for those of your employees engaged directly in carrying out an eligible R&D activity. The expenditure may consist of:

• salaries
• wages
• allowances
• bonuses
• overtime and penalty rate payments
• annual, sick and long service leave
• superannuation fund contributions (which are otherwise deductible under section 690-60 of the ITAA 1997)
• payroll tax and workers compensation insurance premiums.

The relevant employees may include:

• researchers undertaking the conception and/or creation of new knowledge and products
• employees undertaking technical tasks in support of the R&D activities, such as persons keeping records, preparing charts and graphs, operating equipment and writing computer programs
• supervisors of researchers and technical staff.

It is best to pay a salary before the 30^th of June in order to accurately value the contribution to R&D in a company, which is evidenced by payment of the PAYG tax payable in mid-July. The associated superannuation guarantee levy associated to any salaries paid should also be paid to evade any penalties to your company.

As can be seen above, there are many rules regarding what is considered eligible expenditure. Thus,  a company may wish to seek specialist advice to help identity their R&D eligible activities and expenditure. The benefits by way of a tax refund or reduced tax payable are a very valuable incentive to innovate in your business, please do not hesitate to  contact AusGrant today if you would like to learn more about the generous R&D tax incentive.