How to assess if your startup is eligible to claim the R&D Tax Incentive

The end of financial year rush may still be a few months off, but April 30 should be circled in bright red on every startup’s calendar: it’s the last day to submit your R&D Tax Incentive claim.

Though startups are often working on products and services that may one day end up changing the world, the process of ‘innovating’ – less sensationally known as conducting research and development, or R&D – doesn’t come cheap.

Building out a platform, testing it, and iterating on feedback to create the world’s next big thing can be expensive, whether that’s due to the expertise required to carry out the work, the tools or equipment necessary to create, the costs of attaining the permissions needed to put a new product out into a certain market, or a whole host of other factors.

When you’re a cash-strapped startup, those costs can make a significant dent in the budget.

To help keep Australian companies innovating is the R&D Tax Incentive, a long-running government grant program that helps businesses offset and recoup a portion of the costs of conducting research and development. By helping businesses recoup a part of their expenses, the government aims to reduce the financial risk involved in undertaking R&D, in turn aiming to boost productivity, innovation, and economic growth.

For R&D expenses incurred during the 2015-16 financial year, businesses can be refunded up to 45 percent of eligible activities by putting in a claim before the April 30 deadline.

Recent news around the R&D Tax Incentive has led to confusion around eligibility requirements and what it means to undertake R&D, with the government releasing a taxpayer alert announcing it would be checking R&D claims made by businesses in sectors including agriculture, construction, and software development after it found some companies were claiming ineligible expenses.

That’s no reason to be deterred, however – the government isn’t cracking down on startups, rather the issue lies in how startups are going about assessing what may be eligible.

With the R&D Tax Incentive one that businesses are entitled to, taking the time to get it right and ensure your business is able to claim back every cent it’s able to is crucial.

The first step is looking at what comes under the all-encompassing, often confusing umbrella term ‘R&D’ and thinking about whether any activities undertaken by your business fit.

R&D is the process of gaining new knowledge or bridge a knowledge gap through the conducting of an experiment or trial, such as building a new software platform, testing it, and launching – or even going back to fix some features or starting over; your trial or testing doesn’t have to have been successful to count as R&D.

Essentially, if your business is doing is entirely new, or doing something that is in some way different to what others in the industry are doing, then it is creating and gaining new knowledge.

So, for a startup developing new software, for example, how would you go about proving that you’re creating new knowledge?

Like your personal income tax return, where you self assess and make sure you have the receipts to back all your expenses up, it’s all about the documentation.

This could mean screenshots taken from Drupal showcasing technical specifications, notes taken by your developers about the work they were doing each day, or minutes from your board meeting outlining the idea behind the R&D and what it may look to achieve, how, and why.

Able to help with this entire process from start to finish is Nifty R&D by PwC.

Designed for the startup stage, where cash is key, Nifty R&D enables businesses to start and finish their R&D tax incentive claim in 20 minutes, helped along the way by a chatbot if they have any questions. After their work is done, they can rest easy knowing their claim will be reviewed by two PwC specialists and submitted to AusIndustry.

As part of this review process, the PwC R&D specialist assessing the claim can help a business in determining whether they have a robust claim or whether more documentation may be required.

Melbourne startup Landchecker has made the switch to Nifty to process its claim for the 2016-2017 financial year ahead of the April deadline.

Founded two years ago, Landchecker has recently launched in Victoria with plans to roll out Nationally. Through an interactive map and PDF property reports, the platform displays property planning information, such as zones, overlays, areas of cultural heritage sensitivity, bush fire prone areas and more.

“There are government websites that provide some of this information in each state, but they’re often very slow and clunky, so it can be painful for property professionals and consumers alike to access this information that is very important when considering a property purchase,” explained Jim Leaf, Landchecker’s general manager of sales and operations.

“Planning controls determine what you can do with your land, such as heritage overlays or flooding overlays, and this information is often not presented upfront when you’re looking to make a purchase, so what we’re trying to do is essentially provide a user friendly due diligence tool. It’s free, so everyone can perform their own due diligence and make sure they know all they need to know about the property before they buy it.”

With the Landchecker team made up primarily of property professionals and developers, the need for a tool like Nifty to take care of the business’s R&D claim was crucial.

“It’s really important because any kind of rebate you can get – particularly when you’re a free service like us and everything’s just going out – really helps,” Leaf said.

Since switching to Nifty, Leaf said Landchecker has worked with PwC to look at what aspects of its work is eligible to be claimed as R&D.

“We’re working on a couple of features which aren’t yet on the platform where there are no prototypes our engineers can work off, so it’s all them generating it all from scratch. PwC have been great in helping us understand what we can and can’t claim and what processes we should be following.”

For Mark Tanner, cofounder of Qwilr, a startup helping users replace PDF proposals, quotes, and presentations with interactive webpages, determining what aspect of his company’s work is eligible to be claimed was a comparatively easy process.

“When we started here, we had a team that had worked on tools like Google Wave, Google Docs, and Dropbox, so they knew what had been built before, and knew that what Qwilr was building hadn’t been built before,” he explained.

In Qwilr’s case, the R&D tax incentive in fact did exactly what the government hopes it will: it actually incentivised the team to build their own platform entirely from scratch rather than pulling in different elements to piece something together.

“We could have just bought an off-the-shelf content editor; there are lots of things out there that you can use to build a PDF that’s hosted in the cloud or you can customise a CMS system, but the fact that R&D credit is there allows you to say, I may as well spend $100,000 building it myself, as that’s mitigated a bit by the fact the government is going to help out,” Tanner said.

The startup worked with accountants to put its early claims through before finding Nifty R&D, a tool Tanner said has made the whole process “considerably easier and more pleasant”.

“Nifty is a simple interface, and they’ve translated all the questions into common English so it’s straightforward. If you have a question they have a chat bot, and at the end of the day you still have a partner from PwC reviewing it,” Tanner said.

To support its claim, Tanner explained Qwilr goes into detail around pieces of code and why it’s novel, in some cases looking at similar tools in the market and highlighting how its work is different.

For projects that haven’t worked out too, where the startup hasn’t been able to build a tool to a commercially viable level, the team simply highlights evidence of its work, and then backs it all up with statements from the accounting side of the business.

With the April 30 deadline fast approaching, now is the perfect time to look at the ways your startup is innovating, and claim back the hard-earned cash you’re entitled to with Nifty R&D.