If so, your company may be eligible for either a 40% non-refundable tax offset or a 45% refundable tax offset on qualifying R&D expenditure. If you believe your company qualifies for the R&D tax incentive, you may need to act quickly to ensure you don’t miss out on potentially significant tax benefits as the registration deadline of 30 April 2017 is fast approaching.
The experimental activities must form part of the company’s core R&D activities. Core R&D activities are where your company hypothesises and undertakes experiments with a view of developing something that has not been done before and cannot be done without experimenting - however, the process must involve the creation of new knowledge.
Registration due 30 April 2017
Companies that have undertaken R&D activities during the year ended 30 June 2016 must register their activities with AusIndustry by 30 April 2017 to qualify for the R&D Tax Incentive. This deadline is strictly enforced.
For companies with a substituted accounting period (SAP), the relevant cut-off date for lodgement will be ten months post the SAP year-end. For instance, a company with a 31 December 2016 year-end will be required to lodge their application with AusIndustry prior to 31 October 2017.
R&D rate reduction of 1.5%
From 1 July 2016, R & D tax offsets will be available at a slightly reduced rate:
- The refundable R&D tax offset for companies with an aggregated turnover of less than $20 million will be reduced from 45% to 43.5%
- The R&D tax offset for companies with an aggregated turnover of more than $20 million will be reduced from 40% to 38.5%
Whilst the reduction in the R&D tax offset flies against Australia’s recent push to attract and retain innovative companies, we do not believe the rate cut will discourage ongoing research and development activities in Australia.
Advance findings for overseas expenditure due 30 June 2017
Companies that have undertaken R&D activities overseas as part of their Australian R&D project during the 30 June 2017 income year are required to register their overseas activities with AusIndustry before the end of the income year in which the activity was conducted, being 30 June 2017.
Again different deadlines apply to companies with a SAP. For example, if the company that is conducting overseas activities as part of an Australian R&D project for the income year ending 31 December 2017, the relevant application cut-off date for an Advance/Overseas Finding will be 31 December 2017.
Assistance with Registration & Aggregate Turnover
As in prior years, Pitcher Partners is able to assist with the preparation of your company’s application to register – including determining its eligibility to register.
We can also assist with the assessment of the aggregated turnover of your company to determine whether it qualifies for the 45% refundable tax offset or for the 40% non-refundable tax offset.
Comprehensive Details on Projects, Core & Supporting R&D Activities
The AusIndustry ‘R&D Tax Incentive Application: Registration of R&D Activities’ form requires comprehensive details on all the R&D projects undertaken by the company and activities undertaken for each project. We can assist in the process of writing up the project details if required or review your claim prior to submission.
Companies are required to classify the activities into core and supporting activities and a description of each activity, its objectives and outcome is required. Broadly, core R&D activities are those experimental activities required to be carried out with the objective of generating new information. Supporting R&D activities are those that are directly related to core R&D activities.
Companies are required to maintain records to demonstrate, not only to AusIndustry, but also to the Australian Taxation Office, that the activities carried out are eligible R&D activities and that they incurred expenditure related to the activities.
You should also note that when completing the company’s tax return, details will need to be kept of all expenditure related to each project, split on a project by project basis, including:
- Contracted R&D costs (including copies of all invoices)
- Details of direct salary & wages that relate to R&D projects (e.g. time of laboratory technicians etc). The allocation of hours to projects (and specifically to R&D activities) should be supported by timesheets or diary entries
- Details of any consumables etc used in the R&D activity
- Details of whether any plant and equipment is used in the R&D activities and if so, the percentage of such use (as supported by log books or other records). This will enable an allocation of depreciation to the R&D claim
- Any relevant amounts paid to Co-operative Research Centres
- Details of the proportion of eligible overheads the company is allocating to the R&D project
Please ask either your regular Pitcher Partners tax contact or any of the contacts in the Pitcher Partners firms below for further details on the issues raised in this Tax Bulletin