Is my startup eligible for the R&D Tax Incentive?

- March 26, 2014 3 MIN READ

This article was co-authored by Emma Petroulas and Aaron Wallace from Nudge Accountingwith input from Scott Warnock, Director at PwC specialising in R&D Tax Incentives.

A number of our clients are interested in claiming the R&D Tax Incentive. We are frequently being asked questions about the program and thought it would be useful to share some insights from PwC’s R&D specialists.

What is the R&D Tax Incentive opportunity?

Scott Warnock: The R&D Tax Incentive is the Australian Government’s key program to support R&D and innovation. It provides companies with up to 45 cents back for every eligible dollar, even in many cases where startup companies are not yet paying tax.

How does the claim process work?

Scott: It is a self-assessment program, which is different to most Government grants (these are typically competitive in nature). In short, companies can access the R&D Tax Incentive through a two-stage process that involves:

  1. Registering: Register R&D activities with AusIndustry (on behalf of Innovation Australia) within 10 months after year end; and
  2. Claiming: Claim the tax offset in the annual income tax return (which would include the ATO’s R&D Tax Incentive Schedule detailing the R&D expenditure incurred).

The deadline for 30 June 2013 year ends is quickly approaching! Companies must lodge an application with AusIndustry by 30 April 2014.

Do I need to have a company to claim?

Scott: Broadly, yes. There are limited opportunities for other entities to claim – however, trusts and sole traders are generally not eligible.

Are white lab coats mandatory?

Scott: No, they are not. It certainly doesn’t hurt to wear a white lab coat, but in our experience, R&D can be undertaken across all industries. For example, software development may meet the eligibility criteria. Our clients span across a wide range of industries – from retail, to wineries, to manufacturers, and anything in between!

What types of costs can I claim?

Scott: A broad range of costs can potentially be claimed, including salaries, on-costs, contractors, rent, and other overheads. There are a number of areas such as legal costs (including patent costs) that need to be considered on a case by case basis – the eligibility of these costs tends to be very fact specific.

Does it matter that I don’t pay myself a salary?

Scott: Yes. In order to claim any expenditure under the program, you need to actually incur the expense in your company accounts (and the salary has to be paid within the year, if you are an owner of the business).

Can I claim R&D conducted overseas?

Scott: There is an opportunity for companies to claim overseas activities, although this is largely intended to support companies that could not have otherwise done the R&D locally. For example, we see this a lot in the Biotech sector as clinical trials often need to be performed overseas to access a larger population not available in Australia. The deadline for these applications is different – companies must apply to AusIndustry within the same financial year as the activities being undertaken (i.e. by 30 June for most companies).

What documents do I need to support my R&D Tax Incentive claim?

Scott: We typically find that companies have existing project documents within the business that can be used to support their R&D claim. AusIndustry has also released industry guides, which provide examples of documents that can be used as evidence for R&D claims.

Do Government grants affect the R&D Tax Incentive?

Scott: Ultimately, the Government only has one wallet! Having said that, there may be an opportunity to consider the characterisation of activities covered by the grant and to still access up to 35 cents back for every eligible dollar (in addition to the grant funding).

Where to from here? If you think your startup may be eligible, have a chat to your R&D Specialist. Remember, if you want to access this incentive for 2013, applications close at the end of April 2014.

Image source: brw.com.au