A tax expert has issued start-ups some advice about the R&D Tax Incentive, namely in relation to the eligibility criteria and recordkeeping requirements, as the April 30 deadline draws closer.
The R&D Tax Incentive is an entitlement program that helps businesses offset some of the costs of doing research and development, in a bid to encourage more businesses to innovate.
Companies with an aggregated turnover of less than $20 million per annum could be eligible for a 45% refundable tax offset.
As with the R&D Tax Concession – the predecessor of the R&D Tax Incentive – companies are required to register annually with AusIndustry before being able to claim.
Companies need to register eligible R&D activities within 10 months of the end of the income year in which the activities were conducted.
For companies that performed activities between July 1, 2011 and June 30, 2012, an application for registration must be submitted to AusIndustry by April 30.
Marc Peskett, a StartupSmart blogger and director of Melbourne-based accounting firm MPR Group, says the R&D Tax Incentive is a program for smaller players, contrary to popular belief.
“That’s what it’s there to do – to encourage small businesses to undertake research and development, and undertake innovation to improve their business and create new knowledge, etc,” Peskett says.
“In previous years, 76% of the claims were from businesses with turnovers of less than $1 million. It just goes to show there are a lot of small businesses that are eligible.
“One of the perceptions or myths is this is only a program for large businesses undertaking research with people in lab coats, which is not true.
“You can be a one-man business undertaking R&D… and you don’t need to have a separate lab. As long as it’s experiment-type activities – trying to create some new knowledge.
“You could be delivering some snappy software product, which has a unique algorithm, which will do something that currently can’t be done. That certainly would be eligible.”
To be eligible for the R&D Tax Incentive, you need to be a company, says Peskett.
“You need to be undertaking some form of experimental activities and incurred more than $20,000 R&D expenditure for the year,” he says.
“There are two types of activities that refer to research and development. One’s a core activity and the other’s supporting activities.
“Experimental activities are when you’re conducting the experiment. Supporting activities are those that you need to help you undertake those experimental activities.
“In your application, you need to be clear. You need to have a core activity and be clear of what that is. It’s all self-assessment but you probably will get a review at some stage, so you need to make sure you keep records.
“[AusIndustry will] want to see records of the activities undertaken and the expenditure incurred under that… Recordkeeping is critical because that’s what [businesses] get knocked out for.”
Peskett says it’s definitely worth enlisting the help of a professional when registering.
“Some people will have the knowledge to do it themselves, but generally I would say the majority of claims are being prepared by professionals,” he says.
“Make sure you have a company structure because we’ve seen clients come in here and want to claim R&D but we find they’ve got a trust structure.
“You need to have a company structure and just keep good records – have good records of what you’ve done and your expenditure.”