News and Research | AusGrant - Leading R&D Grant Writers - Part 2

The R&D Tax Incentive is one of the most effective methods of support for research in Australia and provides companies with up to 43.5 cents back for every eligible dollar – even in cases where start-up firms aren’t yet paying tax. Start-ups can indeed qualify for the incentive too. In essence, any firm developing or improving products, processes or software, for example, may be eligible.

However, one of the key features of the R&D Tax Incentive is that activities usually concern only R&D activities conducted in Australia. Despite this, in particular circumstances, companies can claim the incentive for activities undertaken overseas.

It is important to note that whilst companies may be able to claim overseas activities, this is typically only reserved to support companies that can prove they could not have conducted the R&D locally.  In addition, the deadline for these applications is different – firms must apply within the same financial year as the activities were undertaken.

To elaborate, overseas R&D is classified by the location of where the R&D activity was undertaken. For instance, in software development, this usually means where the developer is sitting in the world when they undertake R&D. This means that even if an Australian company employs the developer and they are a resident for tax purposes, the R&D would still be overseas-based if they happened to be overseas at the time that they created it. This is a region that you need to be particularly cautious of when employing development contractors who may employ overseas developers or outsource development overseas.

In cases where a company wants to claim notional deductions for overseas R&D activities, then they must pass a positive ‘Advanced Overseas Finding’ by AusIndustry.  To provide context, an Advanced Finding is a binding decision from Innovation Australia about the eligibility of a company’s activities under the R&D Tax Incentive. It operates similar to a private ruling request and has the intention to provide certainty for companies. Similarly, an Overseas Finding is a binding decision that relates to overseas activities and expenditure. There are specific rules surrounding the inclusion of overseas expenditure within a company’s Australian R&D Tax Claim. Notably, June year end companies intending to claim overseas costs in the current year’s R&D claim must submit the activities relating to those costs through an Advanced Finding by 30 June.

As can be seen from above, the many rules and regulations adjoining overseas R&D activities may be perplexing for some. Therefore, a company may wish to seek external assistance to help identify their R&D eligible activities and avoid inaccurate judgements. If you think your company may be eligible, have a chat to our R&D tax specialists who will be able to answer any further questions or help you make your claim. The earlier you get the ball running and submit your application, the sooner your company will receive their refund.

Over the last twelve months there has been substantial activity in respect to the research and development (R&D) tax incentive with various announcements broadcasted by AusIndustry and the Australian Tax Office (ATO), as well as the release of the National Innovation and Science Agenda (NISA).  We’ve moved from a mining-led economy to one which is increasingly driven by technology and innovation. Consequently, this has led to an increased focus on the R&D tax incentive.

In light of this, to keep you informed with the developments regarding the R&D tax incentive, we’ve provided important information regarding the R&D Tax Incentive and the End Of Financial Year (“EOFY”) which falls on 30 June.

The following R&D tax claim information will apply to companies that:

• have recently submitted a 2015 R&D claim; and
• intend to submit a 2016 R&D Claim.

Payment of R&D Expenditure to Associates

• Companies intending to submit a 2016 R&D Claim must pay any R&D expenditure incurred to associate entities before year end (i.e. 30 June).
• Where a company incurs R&D expenditure from associates that is not paid by the end of the financial year, the company is able to carry forward the amount and claim as R&D expenditure in subsequent years when the item is paid.

Increased Compliance Activity

• AusIndustry will likely start compliance activity for FY15 applications that were lodged around the April 30 deadline. If you are concerned about an Audit, see our blog on the topic, which clarifies what to expect.

Claiming Overseas Expenditure 

• Companies intending to claim overseas activity costs in their FY16 R&D Tax Incentive claim must seek approval to claim these costs by lodging an Overseas Finding Application before the end of the financial year.

If you have any further questions on the R&D tax incentive, please do not hesitate to contact one of AusGrant today.

Undeniably, we live in the so-called “digital age”. Innovation has formed an important role in our modern society and has been touted as the blueprint for success by the Turnbull government. It plays a key role in medical and environmental improvements, and by its commercialisation, the digital industry also has the potential material economic impact. Thus, it is crucial to fully understand innovation’s drivers and processes – from both a socio-economic and a business perspective. Within this scope, adequacy financing the major players of this industry, the predominantly young and highly-innovative companies, is a major factor of success.

Furthermore, empirical evidence shows that start-up firms play a vital role in the advancement of the digital industry, mainly due to their function of serving as a technology transfer mechanism to bring research from the academia to the marketplace. In fact, according to PWC, the Australian tech start-up sector has the potential to contribute $109 billion, or 4% of GDP, to the Australian economy and 540,000 jobs by 2033. Irrefutably, it is widely recognized that high-tech start-ups are a major source of new innovations and the very nature of innovation is that it involves, research, experimentation and development. Thus, leveraging the outputs of high- tech research and development (R&D) is key in the creation of a successful Australian start-up ecosystem.

However, access to finance remains a key bottleneck for SMEs that are undertaking research and development. As a result, majority of the governments around the world incentivise start-ups to undertake R&D activities through tax breaks.  This is because it is recognised that R&D often coincides with innovation and productivity, which essentially drives nations forward by solving problems and creating opportunities.In Australia, the government provides a lucrative incentive to companies undertaking R&D work in the form of the R&D Tax Incentive.

To elaborate, the incentive helps by offsetting some of the costs of performing R&D. For instance, if your business turns over less than $20 million in revenue and you are in a tax loss position, then up to 43.5% of your eligible R&D expenditure with be refunded by the Government in the form of annual cash rebates. This means real working capital for a project and cash flow for a business, so the focus can be on developing a product without the pressure of needing funding.

As noted above, the refundable component applies to businesses making a loss, which many tech start-ups originally will be. Most importantly, these companies receive it back as cash – which is exactly what a start-up needs to help get its business off the ground. Nonetheless, the benefit also comes in the form of tax credits for businesses making a profit.

On the whole, the R&D tax incentive is designed to encourage investment by Australian businesses in R&D, and it works. Knowing those companies will receive this money back at the end of the year allows them to invest more in R&D than they would otherwise. Without continued R&D, firms risk losing both reputation and competitive positioning in the market, and could gradually decline through failure to invest in new products, technologies, and processes.

Contact AusGrant today if you would like more information on the R&D Tax Incentive and what this could mean for your business.

Australia’s colonial and federal past, its geographical segregation, huge land mass and a small population have vastly influenced the country’s industries, technologies and research institutions. This resource-rich history led to what is more frequently known as the ‘mining boom’. In light of this, Australian industrial research and development (R&D) in the second half of the nineteenth and early twentieth centuries was largely focused on the agriculture and mining industries.

With the mining sector set to slow down in 2016, Australia is now endeavouring to improve resources, technology and innovation. To that end, the CSIRO has recently released a report that creates an all-encompassing road map of global outcomes for the next 15 years.

Publicised this week, the report titled Australia 2030: Navigating our Uncertain Future, outlines four probable scenarios constructed on pre-existing modelling, scientific data and an array of notorious global trends.

Essentially, the report is a blanket of opportunities when it comes to the future of geopolitics, global weather, resource allocation, population shifts, trade, biosecurity, health, emerging technologies and industry developments by the year 2030.

In regards to research and development (R&D), the reports describes that technological innovation, driven by research and development (R&D) investment, contributes around 50 percent of GDP growth in developed countries. As the report words it, “this is the ‘innovation imperative’.” In a progressively interrelated and rapidly fluctuating world, Australia risks being left behind if it fails to innovate, build innovation capacity and invest in R&D.

To put in context, the report highlights that there is a significant innovation gap in Australia. The 2015 Global Innovation Index ranked Australia 10th in the world for innovation inputs but 72nd for innovation efficiency. Furthermore, Australia ranked last in the OECD for research-business collaboration, and our relative rankings for STEM education are in decline.

Overall, to build our future in Australia, we must understand the impending challenges and leverage our research sector to transform those challenges into opportunities. As Australia barrels towards an election on July 2, major parties have been announcing excerpts of their policies as time passes. Thus, whether or not the suggestions outlined in the report will be observed in future policy is yet to be known.

However, in the interim, one currently available tool for accelerating productivity and cash flow is the research and development (R&D) tax incentive. In effect, more than $18 billion of R&D expenditure was registered for 2013-2014 nationally according to the Australian Taxation Office. Nonetheless, the incentive is actually rather undersubscribed and is claimed by only 13, 600 companies per annum. This is particularly surprising as approximately 2 million entities could be eligible for the incentive. If you think you may be eligible, contact one of our specialist R&D Tax consultants to find out more about the scheme.

A federal election approaches and, with it, a window of opportunity for propitious conversations about potential future directions for Australia as a polity, a society, a culture, an economy. Most recently, public jargon has been littered with references to innovation, digital disruption and collaboration. Conversations have predominantly been led by Malcom Turnbull and the release of the Innovation Statement in December 2015. However, the Australian Parliament’s Trade and Investment Growth Committee have also just released a report exploring Australia’s innovative future.

The report, titled Inquiry into Australia’s Future in Research and Innovation, investigated how the research and innovation sector can better assist in conquering Australia’s key economic challenges. The fundamental points relating to the research and development (R&D) tax incentive explored in the report have been discussed below.

To begin with, a key concern emphasised in the report is the collaboration between universities and business. In reaction to this apprehension, the committee recommends that the Department of Education and Training review overseas models of university-business collaboration and consider which strategies could be introduced in Australia. The report revealed that several university bodies reinforced adapting the R&D tax incentive scheme to embolden greater cooperation between businesses and universities.

Nonetheless, the report noted positive growth in regards to research spending. In specific, the report outlines in 2015–16, the Australian Government spent $9.7 billion on science, research and innovation. Of this, the R&D tax incentive measures amounted to $3.2 billion. Professor Roy Green stated that the R&D tax concession had ‘increased from about 15 percent to about 30 percent’ of the overall research and innovation spend.

Furthermore, Australia’s gross spending (government, business and university spending combined) on R&D, equates to 33.5 billion and 2.12 per cent of Australia’s GDP. While Australia’s spending is above the OECD average of 2.02 per cent, countries with strong international reputations for innovation spend a minimum of 3 per cent of GDP on R&D per annum. Independently, Australian business spent $18.8 billion on R&D in 2013-14, which amounted to 1.19 per cent of Australia’s GDP. In the same period, Australia’s higher education sector spent $9.6 billion on R&D, which amounted to 0.63 per cent of Australia’s GDP. As a percentage of GDP, Australia’s R&D spending by business and the higher education sector ranked 15th and 8th, respectively, amongst the OECD countries surveyed.

Thus, as noted above research and development occurs in universities and in businesses – but there remains little connection between the two. Cultivating a partnership between businesses and universities is important and could certainly help bridge the gap between research and proven technology. University and corporate partnerships, driven through tax breaks or other integrated models, could ensure investment in research and innovation in Australia does not get left behind in a competitive international market. Nevertheless, the increased spending on research outlined in the report, as well as the release of the $1.1 billion National Innovation and Science Agenda, indicates that Australia is observing an improved focus on innovation.

If you’ve invested in Research and Development(R&D), contact us today to see if your eligible for the government’s R&D Tax Incentive.