The introduction of the new Research and Development Tax Incentive in 2011 provided the impetus for small to medium sized companies to revisit the issue of documenting their product development activities and getting some assistance from the government.
The headlines for the new incentive are certainly attractive – “45% tax credit”, “cash rebates”, “quarterly payments”. As is the way with most newspaper stories, the facts were not totally accurate. The tax credit is really 15% (but still twice as large as in the previous scheme) and the quarterly payments promise is still be fulfilled.
Nonetheless, the new tax incentive is a valuable asset for any small to medium sized business (especially a start-up) which is developing new products. Two simple calculations illustrate this:
•If you are a tax paying company and you spend $100,000 on R&D you will save an extra $15,000 on your tax bill.
•If you are a start-up or have accumulated tax losses and no tax bill, and spend $100,000 on R&D you are eligible for up to $45,000 in the form of a cheque from the government.
These are attractive benefits, but to get them companies have to avoid the three most common misconceptions being:
1.“We can only claim in-house R&D. The work we do on projects for clients is not eligible.” This is not correct. As long as the development work you are doing is at your own risk (i.e. the client is not guaranteeing payment for your work) the development costs are yours and should be claimed by your company.
2.“We don’t pay any tax – the tax incentive is therefore of no use.” As shown above that is not the case. As long as you incur the costs you can get a cash tax rebate of up to 45% of your R&D spend. The only limitation to this is that the tax credit is not refundable if your group turnover is more than $20 million.
3.“We don’t need any help to apply for the incentive.” This is the most dangerous misconception. The new rules require more information than before, and the eligibility requirements are harder to determine. For example, many companies I visit confuse new functionality with new technology. Just because a piece of software does something which has not been done previously does not necessarily mean that the underlying technology used for the function is new. The Incentive is self-assessing, which means you need to be pretty sure of your ability to withstand a future random audit, with its possibilities of penalties and repayment of benefits.
The deadline for registering for the 2012 year is April 30. f you are unsure whether your business is eligible for the research and development tax incentive, or if you would like assistance in registering and making a claim, please contact the experienced team of accountants and tax agents here at The Quinn Group. For more information on the incentive or for any other business tax related queries submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.