Research and Development (R&D) Tax Benefits to Double for the 2011-12 Year
The R&D Tax Concession/Offset Program (Existing Conditions)
The IR&D Act is in the process of being amended and the benefits for our clients will, as a result, be significantly improved.
The current benefit is a 25% loading on tax deductions for eligible R&D Activities. That is, for an expenditure of $100 on such activities, the applicant will deduct $125 from their taxable income for the year. This equates to a ‘net’ benefit of $7.50 per $100 of expenditure.
The R&D Tax Offset program was introduced in 2002 in order to improve the cash flow of companies in the start-up and early stage commercialisation phases where investments are being made in R&D but cash flow is still negative. Subject to their accumulated tax losses exceeding their entitlement under this program, a company expending $100 on eligible R&D Activities would receive a refund from the ATO of up to $37.50.
The R&D Tax Credit Program (Proposed)
One of the objectives of the amendments is to reduce the benefit for large enterprises, BHP and Rio Tinto for example, and to increase the benefit for the SME sector.
Thus, the benefit for a company with less than $20 million will rise from $7.50 per $100 expenditure to $15.00 per $100; an increase in the tax deduction from 25% to 50%.
The R&D Tax Credit program will continue the Tax Offset benefit for companies in negative cash flow positions but the benefit will rise from $37.50 per $100 expenditure to $45.00.
Companies that can Benefit from the Program
Aside from high tech companies that are obviously conducting R&D, the largest sector is manufacturing but many companies in this sector fail to identify their activities as R&D and fail to receive benefit from this entitlement program.
- Are developing new or improved products or processes;
- Where these development activities require significant technical risk or innovation (or both);
- And where at least one project activity is conducted in a ‘Systematic, Investigative and Experimental manner’. The key words in this context are prototyping and testing of new processes, materials and structures.
The other large category is software development. Most new developments in this sector will contain eligible R&D expenditure. The ‘owner’ or controller of the intellectual property (IP) must be the applicant; this is also true in the manufacturing sector. Thus, a project where a company undertakes software development on contract to another company cannot be the applicant, as the client owns the IP. The client can apply.
How can CEBO Help?
We specialise in helping clients to identify the extent of their eligible R&D expenditure and in preparing the necessary R&D Plans and applications to AusIndustry for registration in the program. This is an annual requirement so we get to know our clients well.
Many companies are simply unaware of the R&D scheme or, if they are aware, often grossly underestimate the level of R&D expenditure that they can legitimately claim.
Our initial consultation with a new client is without cost or obligation and we then submit a competitive fixed price proposal to undertake the work; this is an entitlement program and, thus, success fees are not appropriate. Our fees include for all necessary discussions with AusIndustry and we would be present at any assessment sessions called by them.
Applications to AusIndustry can be made from 1 July for the preceding financial year and the period for application extends until the end of April the following year. AusIndustry takes up to ten working days to complete the registration process. On receipt of the registration documents, we forward these to client together with the spreadsheet used to calculate the size of the claim and a copy of the final application form. These are then forwarded to their accountant to assist in the completion of the R&D Schedule in their tax return.
Who is CEBO
CEBO is a small specialised consultancy firm whose partners have around nine years experience helping clients gain maximum benefit from the Government’s R&D Tax Benefit programs. They also have considerable experience finding sources of government funding for businesses undergoing substantial growth or redevelopment.
Rodger Morton has been providing consulting assistance to clients for over twenty five years but also worked in academia and as Managing Consultant Strategic Services with Coopers & Lybrand.
Tim Edgecombe is an Agricultural Scientist with and an MBA (QU) and has held several corporate senior roles with Elders, Australian Wheat Board and, most recently with Medibank Private.
More details can be found at our web-site www.cebo.net.au.