With the 2015/2016 end of financial year fast approaching, it is a great time to start thinking about your company and some of the rebates that you may be entitled to. One of those entitlements is the R&D Tax Incentive: it isn’t new, but many startups are unaware of the fact that they could in fact be eligible for the tax concession and that it could actually change the entire cashflow for their business for the following year.
The R&D tax incentive incentivises businesses, whether they are a very early stage startup through to SMEs and even multinationals, to undertake research and development (R&D) activities. The incentive is by way of a tax offset, so by carrying out eligible R&D activities businesses can get a reward back from the government from a monetary perspective.
Research and development can include a range of activities: it is not necessarily the person in the lab coat blowing up something in a test tube, it is much more broad than that. At its core it simply means that a business is developing something new, whether it be a process, product, piece of equipment, or hardware or a service.
In its most basic form R&D is making something new and innovative for a company, and that can include a range of things like testing and trialling that new product. It is definitely a much broader ranger of activities than people expect when they hear the term – especially in the minds of startups.
There is also a little bit of confusion around at the moment when it comes to conversations around the R&D Tax Incentive in the media, in particular in relation to a review of the program.
According to PwC Manager Anna Perejma, any changes would most likely affect the larger end of town, as opposed to the startup ecosystem.
“I think what they’re really pushing towards, and it’s also in parallel to the New South Wales state budget that came out last year, is that the focus is now on that startup space,” says Perejma.
“The Government acknowledges that this is where most of the opportunities lie to push forward great ideas and innovations; they come from the small end of town. So in terms of the uncertainty of change, my opinion is they’d be looking for some savings in the ‘big space.'”
For a startup, one of the immediate effects that the R&D Tax Incentive can have on the business is centred around cashflow.
“If you’re in that really early stage and you don’t have a tax liability, the beauty of the program is that you can get a refund back from the ATO,” says Perejma.
“[The incentive is] up to forty five cents in the dollar and it is important to remember that it’s an entitlement, so it’s not a competitive process. If you’re doing eligible activities you’re entitled to that refund or that tax reduction. So by not accessing the program you’re almost shooting yourself in the foot from that non-diluted access to cash.”
There are a few basic self-qualifying questions that startups can ask themselves that will help indicate whether or not they may be eligible for the R&D Tax Incentive.
“Well the first thing is, is it new or different to what someone else is doing?” says Perejma. “Another one might be, is it challenging or is the answer not straight forward so they have to go and really think hard or do some research. Another one might be, did it fail? That really goes hand and hand with that challenge, the difficulty in what they’re doing. Then the last one is, did we test it? Did we have to do a test because we didn’t know whether or not it was going to work or not? They’re fairly simple questions and that’s really what the crux of the program is about.”
Nifty Forms by PwC is designed for the startup stage, where cash is key. Designed in a simple and intuitive way, PwC’s Nifty R&D lowers the amount of fees associated with doing the R&D process, and gives customers the comfort of knowing that the claim is reviewed by PWC.
If you go through PwC’s Nifty R&D process page by page, it will prompt you with questions that are easy to understand that aren’t bogged down with legislative jargon. These will be able to be filled out by someone who is familiar with the relevant startup or project.
“Ideally we’d say it should take you half an hour to fill out and press go and then you’re done,” says Perejma. “The benefit is the time commitment savings and level of comfort you will have knowing it is reviewed by PwC.”
Once everything is done and PwC is happy with the content, the organisation usually turns things around in about 48 to 72 hours, and then submits it to the authorities. Once that’s been done and the R&D schedule number has been received and put in and amended with the tax return, the money back is really a judgment call for the ATO in terms of timing. Usually funds are received in between six to eight weeks, but it’s once it’s put through PwC’s Nifty R&D that a claim goes through to the queue at the ATO.
This post is powered by Nifty Forms. The new way to complete your R&D Tax Incentive claim, helping hundreds of Australian startups receive cash back from the government through the R&D Tax Incentive.