What is the Research & Development Tax Incentive?
Research & Development (R&D) Tax Incentive is intended to stimulate increased private sector R&D in Australia. It not restricted to any particular industry sector and is available to qualifying companies in the software industry. The R&D Tax Incentive replaces the R&D Tax Concession for years of income commencing 1 July 2011 onwards (refer earlier article on the R&D Tax Concession).
Increased Levels of Benefit
The R&D Tax Incentive provides the following benefits:
Aggregated Entity/Group Turnover:
- less than $20 million:
- 45% refundable tax offset
- Applicants with a zero tax liability may access a refund for unused R&D tax offset dollars.
- Compares to a 150% R&D Tax Concession at a 30% Company Tax Rate.
- greater than or equal to $20 million:
- 40% tax non refundable tax offset
- Excess offsets may be carried forward to later years.
- Compares to a 133% R&D Tax Concession at a 30% Company Tax Rate.
Other Key New Benefits
Other significant new and enhanced benefits include:
· The increase in the aggregated turnover cap to $20 million and the removal of the R&D expenditure cap provides the potential for a significant cash flow benefit for many more innovation companies currently in a tax loss situation.
· The potential to include more Overseas R&D Costs up to Value of Australian R&D Costs provides significant scope to include more overseas project costs within the claim. Special provisions apply and the 'Advance Finding on Overseas R&D Expenditure' must be submitted before the end of the first financial year in which the support for overseas expenditure is sought.
· The potential to claim the R&D Tax Incentive where R&D is conducted on behalf of an Offshore Parent Entity located in a country with which Australia has a comprehensive double tax agreement and where that corporation carries on a business through a permanent establishment in Australia. Such entities (which were excluded from the R&D Tax Concession by virtue of their corporate structure) will now be able to consider accessing the R&D Tax Incentive.
New Definition of R&D and Increased Compliance
The R&D Tax Incentive also has a new tighter definition of R&D activities, revised special provisions for software R&D and will require more detailed record keeping.
Recommended Action to Optimise the Available Benefits?
To capture the maximum potential of the new provisions, potential applicants should address the opportunities, eligibility and compliance issues as soon as possible and ideally incorporate the R&D Tax Incentive concepts within their standard planning and system / product development processes.
For 30 June financial year-end companies considering claiming overseas R&D activities ocurring in the current financial year, applications for an 'Advance Finding for Overseas R&D Activities' must be submitted before 30 June 2012!
Annual registration of the company's R&D activities must still take place within ten months of the financial year-end.
You are welcome to contact the author for further information.
This article has been carefully prepared but has been written for general information purposes only. This article cannot be relied upon to cover specific circumstances. You should not act upon the information contained in this article without obtaining specific professional advice. The author does not accept or assume any liability or duty of care for any loss arising from any action taken (or not taken) or decision made by anyone relying on the information in this article.
For more information: