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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.

Start-Ups, Have You Considered Grants?

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?

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. 

The Importance of ‘Purpose’ When Claiming the R&D Tax Incentive

calculator-1044173_960_720The conclusion of an AAT case dealing with the R&D Tax Incentive was released on the 22nd of January 2016, highlighting the increased audit and compliance activity by Innovation Australia and the Australian Taxation Office in this area.

The case of JLSP and Innovation Australia [2016] AATA 23 predominantly dealt with whether the R&D activities of the claimant company were conducted for the purpose of generating new knowledge as required by the definition of ‘Core R&D activities’. The definition of ‘Core R&D activities’ can be found in section 355-25 of the Income Tax Assessment Act 1997, which clearly creates a ‘purpose test’ for R&D activities.  Specifically, the case sought to evaluate whether a clinical trial carried out in accordance with a contractual agreement was conducted for the purpose of generating new knowledge.

Innovation Australia declined to make an advance verdict that the taxpayer’s clinical trial was a core R&D activity. It said that the only significant purpose of the trial was to perform specific services to accomplish their contractual obligations.

The AAT rejected Innovation Australia’s submission on the foundation that the trial satisfied the definition of “core R&D activity” in s 355-25(1) because it was an experimental activity for the purpose of discovering something unknown or testing a principle and that the outcome of the activity could not be determined in advance. The AAT also rejected the argument that the purpose of generating new knowledge must be the dominant or prevailing purpose. Rather, the AAT considered that the “purpose of generating new knowledge must be more than an insubstantial purpose and must be substantial enough to enable the activity to be accurately characterised as conducted for that purpose.”

Essentially, the learnings from this case are:

  • R&D entities must be capable of showing the purpose of each core R&D activity. The plan, execution, measurement of results and the response must show that R&D was “more than an insubstantial purpose” yet it does not need to be the purpose that outweighs all others.
  • R&D can be undertaken in a commercial context and it is possible for an R&D activity to be a business as usual activity as long as the R&D entity can show a substantial purpose for each core R&D activity is to generate new knowledge.
  • An activity must be conducted for the R&D entity or for an associated foreign company. If the later, then proper agreements need to be in place.

Should you wish to discuss the elements of the R&D Tax Incentive further, contact AusGrant today.

Supporting Innovation Through Visa’s

buffer-1143485_960_720In order to attract entrepreneurs to our shores and better combat the ‘brain drain’ that sees technology workers take their skills overseas, Australia is seeking to tweak its visa system. In specific, the government aims to do this with the implementation of a new entrepreneur visa.

Under the new National Innovation and Science Agenda, Malcom Turnbull has announced new visa pathways for innovative entrepreneurs. The efforts come as result of Australia’s constant low rankings among global innovation standards.

This new visa category will allow overseas entrepreneurs with innovative ideas to apply for a provisional visa with a pathway to permanent residency upon fulfilling criteria such as business growth and creation of jobs. To qualify for the Entrepreneur visa, individuals will have to:

  • Gain financial backing from a third party, which will likely be assessed by the newly created Innovation and Science Australia (ISA)
  • Possess an innovative and high-growth potential idea that can be implemented in Australia

The new Entrepreneur Visa is planned to be introduced in November 2016.Thus, whilst it is still some time away before the changes take place, the modifications proclaimed look to advantage aspiring migrants and international graduates who want to make Australia their home. By enticing high-calibre and innovative entrepreneurs, Australia’s innovation principles can only advance while local jobs and investment will escalate as a result.

In the interim, other ways to support innovation in a country is through tax breaks. For instance, the R&D Tax Incentive is the biggest scheme in Australia that aids businesses participating in research and development. Over $1.8 billion is granted annually and it is not competitive – in other words, if you are eligible then you are permitted to it. The classification is deliberately comprehensive as the Government wishes to support R&D across various business and industry sectors. AusGrant provides guidance on what undertakings are eligible and facilitates you to comprehend the business benefits and key features of the offset. Contact us today to find out more .

R&D Tax Incentive Under Review

man-879092_960_720In transition from the mining boom to an ideas boom, Turnbull released the Innovation Agenda in December 2015. As we previously mentioned, there was no indication of any immediate changes to the R&D Tax Incentive in the agenda. However, it was noted that the Australian government would be piloting a review of the R&D Tax Incentive to make it more available to the business sector.

At the present time, the review is currently proceeding and is expected to be reported to government in April 2016. The review will seek to pinpoint opportunities to improve the effectiveness of the programme and encourage additional R&D expenditure in Australia.

To assist with this review, An Issues Paper (PDF 611KB) has been established by a panel of professionals to support the evaluation process. The panel comprises of  Mr Bill Ferris AC (Chair of Innovation Australia), Dr Alan Finkel AO (Australia’s Chief Scientist) and Mr John Fraser (Secretary of The Treasury). In short, the Issues Paper explores the government programme and current performance, as well as policy design issues and policy rationale.

Aside from this review by the panel, now is the perfect opportunity for interested parties and individuals around Australia to have their say on the R&D Tax Incentive. Additional input is due by close of business Monday, 29 February 2016, and should be sent to:

R&D Tax Incentive Review Secretariat
GPO Box 9839
E-mail: R&

It is important to note that industry professionals are unaware of when the timing of any changes to the R&D Tax Incentive will take place – as this is purely a task for government.  As described above, the review is currently ongoing and is projected to reach the government in April. Nonetheless, AusGrant will aim to stay on top of any changes as they happen and update our clients as needed. In the meantime, however, companies are still encouraged to engage in R&D. As the incentive presently subsists, companies may be eligible for generous tax benefits. Contact us today to find out more about the incentive and if you qualify.

Transforming the Lucky Country to the Competitive Country

arm-wrestling-567950_960_720“The Lucky Country” – the expression has single-handedly become shorthand for describing our weather, our lifestyle, and our history. First coined by Donald Horne in a rather sarcastic manner in 1964, the book has gone on to become a cult classic, as well as trademarking Australia with a nickname.  Although, is it time we departed from our good fortune and became more competitive instead?

Traditionally, when public discourse states the need for Australian firms to be more competitive, it usually refers to the government implementing policies that make it easier for firms to compete with their foreign rivals. However, this is not quite what economists propose when they say heightened competition is a key driver of improved economic performance. Rather, they mean Australian firms should be forced to improve their own performance by exposing them to greater competition with other Australian firms.

To clarify, John Fraser, the Treasury Secretary of Australia, explains that competition is at the heart of how market economies are organised. “Competitive markets generally deliver benefits for all Australians in a way that sheltered markets fail to do so,” he says. “Effective competition in our economy is a key part of its strength and dynamism. Competitive markets benefit consumers by putting downward pressure on prices … And over time, competitive pressures drive innovation and investment in new technologies and the development of new products and quality services that meet the needs of consumers. This process of innovation is what drives economic growth and improvements in living standards in the long term.”

Indeed, as can seen from the above, competitiveness certainly can aid innovation on a firm level, but can it assist innovation in Australia as a nation? For instance,  Philip Dalidakis, Victoria’s innovation minster, has been shamelessly competitive in ensnaring start-ups and innovation events from other states, having pinched the SydStart conference — to be retitled StartCon — and habitually stirring his NSW counterpart on Twitter. In opposition, NSW’s minister for innovation Victor Dominello,  called for an end to “schoolyard games” and believed competition was fruitless.

Despite this, Assistant minister for innovation Wyatt Roy has backed the Victorian government’s competitive agenda.  Roy described that the rivalry produces strong outcomes and he wants to see more competitive tension between the states. In particular, he believes fierce rivalry with the likes of New South Wales and Queensland would lead to better policy creation, and there would be room for more than one innovation hub in Australia.

As elucidated above, there is certainly a link between innovation and competition. In fact, research by Aghion, Bechtold, Cassar and Herz (2014) showed that increased competition leads to a significant increase in research and development (R&D) investments by neck and neck firms, which subsequently boosts innovation. Besides supporting the creation of new products, processes, and software, R&D can increase profits and knowledge for a company. It not only benefits firms,but  the avails of new knowledge can have positive spillover effects on the broader nation’s innovation levels. Additionally, companies can benefit further by utilising the government’s R&D Tax Incentive. Find out if you’rer eligible for the R&D Tax Incentive in our blog: How Do I Know If I do R&D & If I Qualify for the Tax Incentive?


AusGrant is one of Australia’s leading grant consultancy services, providing specialist services relating to grant submissions to federal and state government agencies.