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The Future of Research and Innovation in Australia

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.

Small Businesses Linked to Surge in R&D Spending in Australia

New findings in the federal budget papers reveal that small companies spend more of their revenues on research and development than large ones.

To be precise, the budget papers attribute the surge in spending on R&D to more activity by companies with turnover of less than $20 million. The federal budget also forecasts that the spending on R&D will jump from $2.9 billion in FY15-16 and FY16-17 to 3.9 billion in FY19-20.  These figures are approximately double the forecasts that were outlined in the 2014 budget, which proposed to cut the R&D tax incentive offset from 45 per cent to 43.5 per cent for firms with turnover of less than $20 million, and to 38.5 per cent credit for larger firms.

The jump in R&D spending can largely be attributed to the R&D Tax incentive, which encourages companies to take the risk in conducting R&D activities to improve their businesses. In certain cases the incentive entails a 45% cash back on eligible R&D projects and it is great opportunity for Australian companies to invest in their own products or services.

Aside from the R&D tax incentive, the surge in R&D by small firms is being driven by post-mining shift and the lower dollar making local research more competitive. Digital disruption, in particular, is having a large impact on the shift. Essentially, disruptors redefine markets by introducing new products and services that, while not immediately as sophisticated as currently available product, offer other benefits such as simplicity, convenience and lower prices and that appeal to new, less demanding customers. Over time, these new products gain a foothold and improve in quality and eventually set a new benchmark for the minimum viable product that defines a category.

In summary, the figures outlined in the budget papers reveal the impact that the R&D tax incentive can have on R&D spending for small companies. However, the R&D Tax Incentive is a frequently overlooked opportunity for smaller companies, with many SMEs mistakenly believing this is exclusively for large corporations or those engaging in ‘white coat research’. By capitalising on these prospects, companies can produce generous tax savings, including generating cash for their past and future investments or developments. Overall, it is great opportunity for Australian  companies to invest in their own products or services and get up to 45% cash back on their investment when they lodge their next tax return (i.e. if their aggregated turnover is less than $20 mil per annum). Don’t miss out on generating cash benefits for your research investments this tax season.

Contact AusGrant today if you would like more information on how the R&D Tax Incentive works and if you qualify.

Does the 16-17 Federal Budget Impact the R&D Tax Incentive?

In a bid to broaden the economy away from a reliance on mining, the Australian government launched the National Innovation and Science Agenda (NISA) last December. The Australian Federal Budget for 2016-17 released on Tuesday night reaffirmed several elements of last year’s $1.1 billion innovation statement. Whilst the budget did not state any meticulous changes to the R&D tax incentive, a number of other changes have the potential to complement local R&D activity.

Most notably, under a 10-year plan, the corporate tax rate will decrease for all companies from 30% to 25%. From 1 July, the small business tax rate will be cut by 1%, creating a figure of 27.5%. In addition, the turnover threshold for small businesses able to access a reduced tax rate will be increased to $10 million (currently companies under $2 million tax rate of 28.5%). The proposed changes to the corporate tax rate will therefore affect the permanent R&D benefit (R&D tax offset rate minus corporate tax rate) for companies with less than $10 million.

Therefore, the proposed figures for companies under $10 million would be:

  • R&D Tax Offset Rate (45%) – Proposed Corporate Tax Rate (27.5%) = Permeant Benefit (17.5%).

This ultimately results in a 1% increase in permanent benefit when compared to figures with the current corporate tax rate. To clarify, the current figures are as follows for companies under $20 million:

  • R&D Tax Offset Rate (45%) – Current Corporate Tax Rate (28.5%) = Permeant Benefit (16.5%).

Furthermore, on Wednesday morning the Senate in Canberra confirmed two new tax incentives to encourage early-stage investing. The measures – the Tax Incentive for Early Stage Investors and New Arrangements for Venture Capital Limited Partnerships – will now be in place for the 2016-17 financial year. The Tax Incentive for Early Stage Investors brings tax concessions to eligible early stage investors who invest in qualifying companies, including a capped 20% non-refundable tax offset and 10-year capital gains tax exemption for investments. The New Arrangements for Venture Capital Limited Partnerships brings a raft of changes aimed to improve access to capital and make investing in venture capital easier and internationally competitive, according to the Government.

In summary, the stability of the R&D tax incentive scheme in the federal budget will no doubt come as a relief to many companies, as the current programme provides a high level of encouragement for companies to engage in R&D and is a broad-based, easily accessed and significant Incentive. Moroever, the lower corporate tax rate and new tax incentives are a welcome change for Australia’s innovative community.

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

R&D Registration Deadline Extended to Today

clock_imageAs 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.

Projected Cuts to the R&D Tax Incentive Will Not Go Ahead

Historically, the R&D tax incentive was formed with a key goal of making government investment for innovation more attainable to small businesses.   In particular, the aid of a refundable tax offset has helped to considerably alleviate the risk. However, in May 2015, the government proposed a Bill that would cut the rate of the R&D tax incentive and would act on a retrospective effect from 1 July 2014. Thus, over the last 18 months, the bill has been overshadowing the innovation network in Australia and has contributed to business uncertainty around the program.

However, this week it was announced that the proposed 1.5% cut to the R&D Tax Incentive under the Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015 will not ensue. On April 17 2016, the Bill before the senate lapsed and will not be going ahead.  Had the Bill conceded, the R&D tax incentive rates would have decreased for large companies by 40% to 38.5% and for smaller companies (with turnover under $20 million) rates would have dropped from 45% to 43.5%.

Despite the fact that the R&D Tax Incentive remains the same today, the news is somewhat eclipsed by the review of the scheme that is currently underway. Nonetheless, the lapsed bill is hopefully a sign of an ongoing commitment to R&D across all political parties. Fundamentally, companies need a steady legislative policy to provide them with the assurance to make long-term choices in expectation that funding will be available. Likewise, the OECD has also warned against R&D tax policy reversals:

“For countries that have experienced a large number of R&D tax policy reversals, the impact of R&D tax credits on private R&D expenditure is greatly diminished. It is therefore important that governments do not repeatedly tinker with such policies to minimise policy uncertainty for firms.”

Overall, evidence reveals that Australia should conserve the R&D Tax Incentive and resist additional fluctuations to the program if we wish to remain a globally competitive and attractive location for R&D. As described earlier, hopefully the lapsing of this Bill is an indication of what will also be reflected in the findings of the recent review.

Contact Ausgrant today if you would like more information about the R&D Tax Incentive and if your company qualifies.

April 30 R&D Deadline Only Two Weeks Away!

As per previous years, for majority of companies with a standard income period of 1 July 2014 to 30 June 2015, lodgement of their registration with AusIndustry is due by 30 April 2016. However, since April 30 falls on a Saturday, this year companies are able to lodge on Monday 2 May 2016. Please pursue the advice of one of our R&D Tax Specialist if you need assistance with your application.

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 will fall on the April 30 deadline. One of the most vital aspects of accessing a compliant incentive claim is keeping contemporaneous and detailed company records. Furthermore, the recent AAT cases and higher levels of review scrutiny by AusIndustry and the ATO demonstrate the importance of documentation regarding the R&D activities.

In short, the requirements to be eligible for the R&D Tax Incentive include:

  • Must register the R&D activities each year with AusIndustry prior to making a claim for the R&D tax incentive in the company tax return (NOTE: Due in two weeks!).
  • Must be an R&D entity, i.e. company.
  • Must be engaged in eligible R&D activities.
  • Have notional R&D deductions of at least $20,000 for the year.

Furthermore, companies must keep sufficient records to authenticate their claim in the event of an audit. These records must show:

  • They conducted eligible research and development activities
  • They experienced eligible expenditure in relation to those activities
  • Their R&D activities and expenditure met all other legislative requirements under the scheme

Ultimately, in order to utilise the R&D Tax Incentive to its best advantage and evade errors requires specialist knowledge. 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.

With only two weeks left to lodge, there is no better time than the present to find out if you qualify.

Government Seeks to Overhaul Tax Loss Rules

The Federal government has released draft legislation centred on providing companies with access to past year tax losses to reduce taxable income, in a bid to incentivise and reward innovation.

The Exposure Draft Bill [PDF] contains proposed amendments to the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936, in order to improve companies’ access to previous losses in claiming a reduction for taxable income despite a changed ownership.

Under the current regulations, businesses that have changed ownership must satisfy the ‘same business test’ to access past year tax losses – a process the government branded as obstructive and stifling innovation in the economy.

Rather, the draft legislation suggests “same business test” be exchanged for a “similar business test” for the purpose of determining whether a company’s tax losses from previous income years can be utilised.  In effect, the new amendments intend to remove the “no new transactions or business activities” aspect of the same business test. The draft legislation describes that a company will pass the similar business test if its current business is a similar business to its previous business. This will depend on the extent to which the company produces assessable income from the same assets and sources, and whether any changes to the business are changes that would realistically be expected to have been made to a similarly placed business.

The legislation draft forms part of the government’s Innovation and Science Agenda it unveiled in December. Ultimately, the new measures proposed aim to encourage entrepreneurship by allowing loss making companies to ‘pivot’ and seek out new opportunities to return to profitability. These proposed changes, coupled with the new tax incentives for start-ups and investors and the existing R&D Tax Incentive, reveals that the innovative environment in Australia is indeed growing.

Contact Ausgrant today if you would like more information about the R&D Tax Incentive and if your company qualifies.

Government Announces New Tax Incentives for Early-Stage Investors

In mid-March, the Australian Federal Government introduced new early-stage investor tax incentives to Parliament. The Tax Laws Amendment (Tax Incentives for Innovation) Bill, as it it’s titled, has been noted by industry leaders as arguably the most generous start-up investor scheme in the world.

The technicalities of the new tax incentives are outlined below:

Tax Incentives for Early Stage Investors

  • Investors will be given concessional tax treatment to foster new enterprises and promote entrepreneurship.
  • This includes a 20 per cent non-refundable tax offset on investments in qualifying companies, and a ten year exemption on capital gains tax for investments held for 12 months or more.

New Arrangements for Venture Capital Limited Partnerships

  • There will be changes to the tax treatment of Early Stage Venture Capital Limited Partnerships (ESVCLP) with an aim to attract more investment into venture capital.
  • Investors will receive a 10 per cent non-refundable carry forward tax offset on capital invested through an ESVCLP.
  • The maximum fund size for new and existing ESVCLPs will be increased from $100 million to $200 million.

It is predicted that following the Royal Assent, the tax incentives should apply from the 2016-17 income year. The amendments will apply to shares issued on or after 1 July 2016 or Royal Assent (whichever comes last).

Undeniably, the new tax laws are a key element of Australia’s plan to encourage greater risk-taking to ease the pain of an economic transition from the mining boom to the ideas boom.  In addition, when bearing in mind other tax incentives on offer, such as the research and development (R&D) tax incentive, the enticement to innovate in Australia is mounting. In essence, any Australian firm developing or improving products, processes, or software, may be eligible for the R&D Tax Incentive.   However, with the deadline for claiming the R&D tax incentive looming on April 30, companies must act quickly to ensure they don’t miss out on the currently available, and potentially significant, tax benefits.

Contact Ausgrant today if you would like more information about the R&D Tax Incentive and if your company qualifies.

R&D Tax Incentive Deadline Draws Near

watch-932814_960_720With Malcolm Turnbull increasingly broadcasting his enthusiasm for an Australian ‘ideas boom’, the importance of research and development (R&D) on economic development has become progressively discussed in public discourse.

Nonetheless, numerous companies are unacquainted with the opportunities available to them in regards to tax benefits. To combat the cost of engaging in R&D activities and the development of technology, the government currently offers a generous R&D Tax Incentive.  However, it is important to note that the deadline to register is drawing near.

Each year the registration deadline for the R&D Tax Incentive typically falls on April 30th. This is because the deadline for lodging an application for registration is ten months after the end of a company’s income year. Therefore, for companies with a standard income period of 1 July 2014 to 30 June 2015, the lodgement of their registration with AusIndustry is consequently due by 30 April 2016. This year, in contrast, companies are able to lodge on Monday 2 May 2016 due to April 30 falling on a Saturday. It is still recommended that companies prepare before the final deadline date though to safeguard against a late submission.

The R&D Tax Incentive is a frequently overlooked opportunity for smaller companies, with many SMEs mistakenly believing this is exclusively for large corporations or those engaging in ‘white coat research’. By capitalising on these prospects, companies can produce generous tax savings, including generating cash for their past and future investments or developments. Overall, it is great opportunity for Australian  companies to invest in their own products or services and get up to 45% cash back on their investment when they lodge their next tax return (i.e. if their aggregated turnover is less than $20 mil per annum). Don’t miss out on generating cash benefits for your research investments this tax season.

Contact AusGrant today if you would like more information on how the R&D Tax Incentive works and if you qualify.

Do Salaries Count When Claiming the R&D Tax Incentive?

embassy-935558_960_720Salaries, 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 30th 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.