R&D Tax Incentive – Expert Issues Advice To Cash-strapped Start-ups: Tax

Start-ups warned over ponderous R&D refunds

By Michelle Hammond
Monday, 13 August 2012

An expert has issued a warning to start-ups relying on R&D claims as a form of cashflow, amid reports of lengthy payment times, saying it all comes down to responsible money management.


According to an article in The Australian Financial Review, the Australian Taxation Office is getting slower on R&D payments, which is hurting start-ups that rely on the handouts.


It’s been reported the ATO has about 400 company returns with R&D tax claims on hand that are more than 50 days old.


According to an ATO spokesperson, the ATO’s “validation and integrity processes have been designed to ensure that we reduce the impact on the majority of company tax returns and target higher risk claims”.


The outstanding claims largely relate to those made before the 2012 tax year, under the old rules.


From July 1, a tax incentive scheme replaced the concession, allowing small companies to receive a refund for the costs of developing products and services.


Those with annual turnover of less than $20 million may be eligible for a 45% refundable credit, while companies with higher revenue could receive a 40% non-refundable credit.


Specialist R&D tax advisory Swanson Reed surveyed 500 companies this year, and found the cash refund is one of the only cashflows for most companies in the lower revenue threshold.


This means start-ups relying on the refund could face a cashflow crisis, as they wait longer and longer to receive their refunds.


According to Swanson Reed tax principal Damian Smyth, some companies have been waiting four months. The standard is 30 to 40 days.


Smyth said the ATO is becoming increasingly inconsistent with payments.


“We find they’re going in waves. The ATO will go through a phase where they’re quite good and then there’s other times where it does stretch out a bit,” Smyth told StartupSmart.


“There’s a consultation period going on at the moment. It’s all pie in the sky legislation at the moment, but that’s one of the things we’d be looking to nut out.”


In light of the uncertainty, Smyth says start-ups need to ensure they remain financially responsible and maintain their spending.


Because the refund is calculated on past-year taxes, a company that claims more refunds than it is ultimately eligible for could find themselves in “a spot of bother”, Smyth warns.


“Where they could get into trouble is where they receive a refund based on a historical claim,” he says.


“If the money is put to them, the temptation is to get their hands on it and worry about it at the end of the year... It’s definitely a case of responsible money management.”

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