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

May 5th, 2016

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

May 2nd, 2016

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

April 21st, 2016

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!

April 15th, 2016

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

April 11th, 2016

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

April 6th, 2016

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

March 17th, 2016

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?

March 10th, 2016

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.

Start-Ups, Have You Considered Grants?

March 4th, 2016

creativity-819371_640Where support for Research and Development (R&D) is called for,  start-ups will usually look to cash support (grants), or on the tax system as a mechanism to deliver credits or allowances. Whilst we have previously discussed the benefits of the R&D Tax Incentive for start-ups, what grants are on offer to assist innovative companies? If you are an entrepreneur or start-up trying to take your unique intellectual property (IP) to market, one of the most difficult challenges encountered  is the commercialisation process.

Accelerating Commercialisation is a key offering under the Entrepreneurs’ Infrastructure Programme (EIP) and works through an Expression of Interest (EOI) process. The key objective is to promote business growth and competitiveness through support for business improvement and economic growth.

Accelerating Commercialisation helps address the challenges associated with commercialising novel intellectual property in the form of new products, processes and services by offering access to experienced Commercialisation Advisers. It also helps facilitate greater commercial and economic returns from public or private research and development investment in order to drive business growth and competitiveness.

To be eligible for the benefits of Accelerating Commercialisation, projects must consist of at least one of the following:

  • Complete development of a novel product, process or service
  • Prove commercial viability
  • Make the first sales in Australia or overseas
  • Drive the business towards commercialisation in the marketplace by engaging an experienced Executive.

 Ineligible Accelerating Commercialisation projects are those that:

  • Focus on basic research or technical experiments
  • Scale production or marketing in markets where you have already made your first sales
  • Develop a novel product, process or service for internal use only
  • Commercialise the next version of an existing product, process or service by minor changes

Successful applicants of the program will receive multiple benefits including an invitation to join the portfolio of Australian businesses undertaking early stage commercialisation activities; guidance from a Commercialisation Adviser to help achieve objectives; an opportunity to access the Expert Network and exposure to investors and multi-national corporations.


If you would like more information on this topic, click here.

If you would like more information on the R&D tax incentive, contact us today.

What is the R&D Tax Incentive Worth to You?

March 1st, 2016

Innovation, aside from being coined as the blueprint for success by the Turnbull government, can greatly benefit companies at a firm level. However, to transfer innovation into reality, business leaders need to invest in the skills, systems, processes and collaboration structures that will make it a national competency.

Consequently, research and development (R&D) makes the prospect of being more innovative more accessible to companies and is one of the best tools to differentiate from competition. Investing in R&D is imperative if companies want to stay ahead of the technology curve and grow by developing new products, processes or software. R&D, aside from driving innovation in companies, can be an important driver of economic growth for businesses and the nation at whole.

Fortunately, the government offers a tax benefit for companies who have engaged in R&D activities. The tax benefit essentially makes the prospect of investing in innovation much more viable.  The Research and Development (R&D) tax incentive, as it is formally called, is one of the most effective methods of support for research in Australia and can provide companies with up to 43.5 cents back for every eligible dollar. However, just how much a company can claim is largely dependent on the revenue that company generates in a fiscal year.

The intention of the incentive is to boost innovation and improve businesses processes while providing generous tax benefits. Start-ups, large, small and medium sized companies can qualify for the incentive if they have eligible activities. To find out if you meet the requirements of the R&D tax incentive, have a chat to AusGrant today.