20 April 2011
Small businesses often need to innovate to survive, but despite this the level of research and development claims made by SMEs is minuscule. R&D deductions by small business represent just 10% of all claims yet SMEs employ about half of the Australian workforce.
In many cases, SMEs are completing R&D work in their business without recognising that they are actually doing so – and missing out on additional tax concessions or cash refunds from the Government.
R&D is often thought of as being something that people in lab coats do with test tubes in a clinical environment, hence the moniker of ‘the scientist syndrome’.
The reality however is that where a business seeks out innovation, is testing and trialling processes and there is an inherent risk that the test might fail, then it is likely that the work is research and development.
This includes developing new products or product variations that can be commercialised to add value to your business. Whether the testing is carried out at your factory, office or warehouse, you may qualify for R&D concessions and grants.
The Australian Government runs an incentive program for R&D work carried out by business, which is administered through AusIndustry, but any claims are made via your tax return.
To make a claim you need to be registered prior to lodging your tax return. Once your claim is submitted to Ausindustry, they will provide you with a claim number to be included in your tax return.
Your application to Ausindustry must be made by no later than 10 months after the end of the financial year.
So, assuming you have a 30 June balance date, you need to have submitted your application by 30 April. This only gives you limited time to act.
The two main concessions currently are:
- 125% R&D Tax Concession - a general concession allowing eligible companies to deduct 125% of eligible R&D expenditure incurred on eligible Australian-owned R&D activities in their annual tax returns. The basic eligibility requirements must be satisfied to access this tax concession.
- R&D Tax Offset - This tax offset allows small companies who are in a tax loss to cash out their tax concession entitlements. The tax offset is paid at the rate of 30 cents for each dollar of deduction that would have otherwise been claimable. For early stage companies (or where you are in a tax loss position), this can be a valuable boost to your cash flow. You can cash-out the tax losses that have been incurred in your R&D work.
To be eligible for the R&D tax concession, you must meet all of the eligibility requirements for a specific claim. The basic requirements to be satisfied to access the R&D tax concessions are:
- The entity must be a company incorporated in Australia, not acting in the capacity as a trustee.
- The activities must qualify as R&D activities, for example activities which are either ‘systematic, investigative and experimental activities involving innovation or high levels of technical risk’ (SIE activities), or activities which are directly related to carrying on the SIE activities.
- An R&D plan and adequate R&D records are maintained.
- A minimum of $20,000 R&D expenditure was incurred unless the R&D is contracted to an approved Registered Research Agency.
There are some additional requirements for claiming the tax offset and premium. If you think your business might be eligible for the concessions, it’s worth talking to your accountant or business advisor. You are likely to need advice in this area and assistance to prepare your claim.
Like most other tax areas, you self-assess your R&D claim but need to be able to substantiate it if it is queried or subject to audit. Where you are undertaking R&D activities you should take advantage of these additional assistance programs, as they will help defray some of your costs and provide a cash flow boost.
To find out whether you’re eligible for R&D concessions or any other business grants, contact us on 02 9957 4033 or email our team.
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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.