Businesses miss out on R&D Tax Incentive through ‘ambiguity’

MANY businesses undertaking research and development (R&D) are missing out on helpful 45 percent refundable tax offsets through simple errors in record keeping. 

According to MSI Taylor Accountants’ Matt White, recent ‘definitions’ changes to the Australian R&D Tax Incentive were ambiguous and left many small businesses failing to make R&D claims and, in other cases, not receiving their eligible cash refunds, even though they were regularly undertaking eligible activities and already had existing documentation practices that satisfy the requirements.

Mr White said the Australian R&D Tax incentive was “an easy to access entitlement program that helps businesses offset some of the costs of doing R&D”.

According to AusIndustry, the two core components of the R&D Tax Incentive, which replaced the former R&D Tax Concession, are: a 45 percent refundable tax offset, equivalent to a 150 percent deduction, to eligible entities with an aggregated turnover of less than $20 million a year; and a non-refundable 40 percent tax offset, equivalent to 133 percent deduction, to all other eligible entities.

“In essence, the program aims to help more Australian-based businesses do R&D and innovate,” Mr White said.

He said the 45 percent Refundable Tax Offset, which in many cases can be ‘cashed out’, should be a crucial consideration for small business cash flow planning.

“Yet many small companies are still missing out on their opportunity to make claims and receive cash refunds due to the perceived complexity and ambiguity surrounding eligibility and the application process,” Mr White said.

The new R&D laws became effective from July 1, 2011, and introduced a greater emphasis on record keeping. They also provided a new definition for eligible activities – as either Core R&D Activities or Supporting R&D Activities.

Mr White said under the definitions, Supporting Activities needed to be either ‘directly related’ or for the ‘dominant purpose’ of supporting the Core R&D Activities.

These new definitions were ambiguous, he said.

“Key concerns were around: How to identify if the activities they were undertaking where eligible? How burdensome is the application process? What are the documentation and ongoing record keeping requirements?” Mr White said.

“As a result and due to industry, adviser and participant feedback, AusIndustry – the government department responsible for administering the Australian R&D Tax Incentive program, together with the ATO – have released various industry sector guides to help applicants identify eligible activities and understand their compliance requirements,” Mr White said.

“Released throughout 2012 and 2013, AusIndustry have prepared guidance and case studies for the ICT, agrifood, biotechnology, manufacturing, energy, and built environment sectors,” Mr White said.

“AusIndustry have also introduced a series of focus and face-to-face workshops throughout each state and in 2014, will be trialling various e-learning modules in order to reduce the perceived ambiguity and confusion around the R&D program.”

Mr White warned that to now make an R&D Tax Claim – and to potentially receive a cash refund of monies spent – companies must register their R&D activities each income year in which the activities are undertaken.

“Importantly, companies that wish to make R&D Tax claims for eligible expenses incurred during the period ending 30 June 2013 must submit an R&D Application with AusIndustry by 30 April 2014,” he said.

Mr White said MSI Taylor is part of the MSI Global Alliance whose member firms have assisted 100s of small businesses through to ASX-listed companies across a broad range of industries in identifying and preparing R&D claims “as well as helping them understand their compliance requirements”.

http://www.ausindustry.gov.au/

 

http://www.msitaylor.com.au/

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