Tax planning and the R&D Incentive

Background
The Research & Development (R&D) Tax Incentive was introduced by the government to encourage businesses to conduct research and development activities that are likely to benefit the wider Australian economy.

By way of background, companies carrying on eligible R&D activities may be entitled to a tax offset when they lodge the tax return:

  • 43.5% refundable tax offset for companies with an aggregated turnover of less than $20 million;
  • 38.5% non-refundable tax offset for companies with an aggregated turnover of at least $20 million.

More and more companies are availing themselves of this measure – the last six years has seen a 75% increase in registrations, from 8753 applicants in 2010-11 to 15,321 applicants in 2016-17.

What is “R&D”?
Briefly, a company may be eligible for the R&D tax incentive where it is conducting an activity that has three key components:

  1. New technical knowledge: the activity is carried out for the purpose of generating new knowledge in the form of new or improved materials, products, devices, processes or services;
  2. Technical uncertainty: the outcome of the activity cannot be known or determined in advance on the basis of current knowledge, information or expertise;
  3. Experimentation / testing: the activity is experimental in nature and involves a systematic progression of work based on principles of established science that proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.

Planning opportunities
Tax planning is important for all businesses, including those conducting research and development activities. A tax plan will maximise a company’s R&D claim and optimise its overall tax position.

The most effective approach is to adopt a holistic R&D and tax strategy, such as implementing the following tax planning measures:

  • Bringing forward supplier invoices
  • Prepaying expenses
  • Clearing any superannuation liabilities
  • Deferring raising invoices where possible
  • Paying any amounts owing to associates
  • Choosing appropriate depreciation rates

Further, implementing best practice methods now strengthens the company’s position that contemporaneous documentation has been kept, which is the main area where companies come unstuck if their R&D claim is selected for review by the ATO.

If you believe your company may be eligible for R&D, now is the time to speak to your William Buck contact.

To find out more contact: Tax Manager Alex Zinzopoulos