The R&D Tax Incentive. Federal funding support for Australian experimental R&D

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1 The R&D Tax Incentive Federal funding support for Australian experimental R&D

2 tem: R&D Tax R&D Incentive Tax Incentive The R&D Tax Incentive is a generous Federal Government programme Administered by AusIndustry and the ATO Part of your self-assessed tax return Entities engaged in R&D may be eligible for: 45% Cash Refundable tax offset for turnover <$20m (or) 40% Tax Offset Non-refundable tax offset for all other entities up to $20b turnover

3 The R&D Tax Incentive Benefits Ordinary business expenses are tax deductible, saving 30% tax. In effect, this is a % improvement for R&D, over the 30% tax deduction. For profitable companies, this can reduce the tax liability, or even turn a small tax liability into a tax rebate. For companies in a loss-making position: Losses can be carried forward to future tax years, or the benefit can be taken as a cash rebate The benefit of an immediate cash rebate often significantly outweighs the future benefit of accumulated tax losses foregone. This might mean the difference between having to raise capital, or not.

4 What is Eligible R&D? What is R&D? An experimental activity Where the outcome cannot be known in advance (at risk) Following the systematic progression through the scientific method: Hypothesis Experiment Observation and Evaluation Logical conclusions (Reporting) For the purpose of generating new knowledge Includes new or improved materials, products, devices, processes or services

5 Examples of Current Access RnD Clients Traditional laboratory development in chemistry and biology Technology Minerals processing Industrial waste recycling New product development Cleaning tools Security hardware Automotive components Novel vending machines IT Software and hardware for: Fast trading in the finance sector Managing and analysing telecommunications networks Sporting competitions, competitor performance and training analysis Labour management and recruitment

6 What is new knowledge? New or improved materials, products, devices, processes or services On a worldwide basis, not just in Australia Needs to be more than: A simple progression from what is already known; or Applying existing knowledge in a different context or location. What is the knowledge gap? Can the outcome be predicted in advance? What research did you do about existing knowledge prior to starting? Scientific literature, trade magazines, internet searches, and so forth. Where was the risk? Who owns the resulting IP?

7 Core Activities Core activities are experimental activities to develop new knowledge Exclusions: The following are not Core Activities, but may still be Activities Market research, market testing or development, or sales promotion Management studies or efficiency surveys Research in social sciences, arts and humanities Commercial, legal and administrative aspects of patenting or licensing Compliance (eg NATA or ISO) Reproduction of existing commercial products or processes Software development for internal administration

8 What is Eligible R&D? Activities All the other factors that are required to enable the Core Activity to occur Labour Equipment and infrastructure Feedstocks and inputs Included if they directly related to, or for the dominant purpose of the core R&D as an addition to routine activities would not have occurred in the absence of the core activity normal production practices are extensive disrupted a risk that production outcomes will be compromised If the infrastructure has another use, it might not be for the dominant purpose. eg the purchase of equipment would not be for the dominant purpose of R&D if it is (or will be) mostly used for commercial production restrict the claim to a proportion of the purchase, for the time period in question

9 Activities Activity Identify an industry need, research client(s) to determine requirements Research existing solutions, and document existing state of knowledge Allocation Develop a hypothesis and experimental design, procedures and/or test methods Prepare, purchase and set up equipment and materials for the experiment(s). Test the hypothesis via an experimental procedure Collect data and evaluate results against specified criteria Refine or reject hypothesis, and continue iterative experimentation Core Activity Core Activity Core Activity Prepare internal and/or external reports Management, oversight and administration

10 Activities Activity Allocation Example Records / Evidence Identify an industry need, research clients to determine requirements & specifications Research existing solutions, and document existing state of knowledge Develop a hypothesis and experimental design, procedures and/or test methods Prepare, purchase and set up equipment and materials for the experiment(s) s, client specs, meeting notes Literature reviews, patent searches, technology reviews, trade journals Experimental procedures, project planning documents Invoices, timesheets. Work orders, safety evaluations Test the hypothesis via an experimental procedure Core Activity Timesheets (useful, not absolute) Collect data and evaluate results against specified criteria Core Activity Invoices, s, lab notes, photos & videos, samples and prototypes, collated data (eg Excel) Refine or reject hypothesis, and continue experimentation Core Activity Experimental data, meeting notes, internal reports Prepare internal and/or external reports Published papers, client reports, patent applications Management, oversight and administration s, meeting notes, timesheets, asset usage logs, management accounts

11 Potentially Eligible Expenses Direct R&D payroll costs - including wages, superannuation, contractual entitlements (eg motor vehicle, LAHFA), payroll tax, workers comp Direct R&D contractor costs Consumables, minor equipment and other costs directly identified as being required for core R&D activity A proportion of: payroll for management & administration site overheads, such as rent, outgoings, electricity, cleaning general office overheads, such as computer equipment, telephone, internet, certain insurances, bookkeeping depreciation on assets used for core R&D travel directly related to R&D recruitment and training costs for R&D staff memberships and subscriptions, such as to associations, scientific databases, industry journals BUT NOT: R&D conducted overseas (except via an Overseas Finding ), directors fees, legal/ accounting fees, interest (as example on hire purchase), staff amenities, fines, patenting costs, marketing

12 How to Claim 1. Register your R&D with AusIndustry (within 10 months of the end of the reporting year) Obtain unique electronic SmartForm from the AusIndustry website Provide information about the company (including employee, revenue and export info) For each project, describe the purpose, new knowledge, core activities and supporting activities Specify the total costs for core activities and supporting activities for each project Submit electronically via AusIndustry AusIndustry will respond with a unique registration number in ~1-4 weeks (depending on time of year) 2. Complete the ATO Tax Schedule Including the R&D registration number provided by AusIndustry 3. Submit your Company Tax Return as normal to the ATO You refund should take ~2-6 weeks, as normal

13 Our Role AusIndustry has stated (May 2013) that it uses automatic algorithms to conduct an initial review of R&D Tax Incentive claims, with initial audits triggered by particular criteria. There are a range of registered tax agents who specialise in this area. Access RnD Tax Solutions is a boutique, independent R&D tax consultancy with low overheads and low costs Our role is to: Work with you to prepare your completed AusIndustry SmartForm and lodge it on your behalf; Review / advise on supporting evidence to verify eligibility of your R&D activities; Prepare the ATO Tax Schedule for you and/or your existing tax agent; Represent your company in your dealings with AusIndustry and the ATO in relation to your R&D claim. Our consultants: Rod Campbell a specialist in R&D tax programmes since they commenced in 1985, with 30 years experience with Export Market Development Grant and other Government programs Dave Sammut 20 years as a technologist and corporate manager in active R&D environments, with both science and business degrees

14 Summary In Conclusion If your company is conducting experiments to develop new knowledge; If your company keeps experimental activity records as part of normal practice; and If your company is not currently taking up its entitlements under the R&D Incentive programme, then Your company may be eligible for substantial additional benefits. You can learn more from AusIndustry: Contact Access RnD for a free assessment of your R&D status. Access RnD Tax Solutions: (ph) 1800 RND TAX ( ) rod@rndtax.com.au dave@rndtax.com.au