Research and Development Tax Incentive
Are you innovating with technology? I mean really innovating? Experimenting, taking risks, going where no (wo)man has gone before? If you are, then you’re eligible for the Research and Development Tax Incentive.
What is the R&D Tax Incentive?
The R&D Tax Incentive provides a targeted tax offset designed to encourage more companies to engage in research and development in Australia. The R&D Tax Incentive has two core components:
- a 45 per cent refundable tax offset (equivalent to a 150 per cent deduction) to eligible entities with an aggregated turnover of less than $20 million per annum
- a non-refundable 40 per cent tax offset (equivalent to 133 per cent deduction) to all other eligible entities.
As you can see, this is “real” money the government is giving away, so if you think you’re eligible, it’s well worth the effort.
Core R&D Activities
Core R&D activities are experimental activities:
- whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
- is based on principles of established science; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
- that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).
Process for Identification of Core R&D Activities
Supporting R&D Activities
A supporting activity is one that is directly related to core R&D activities or, for certain activities, has been undertaken for the dominant purpose of supporting core R&D activities. Activities that must satisfy the dominant purpose requirement are those that produce – or are directly related to producing – goods or services; or are excluded from being core R&D activities.
Process for Identification of Supporting R&D Activities
Like anything ATO related, the process can be confusing for us mere mortals, so keeping records relating to the proof of your R&D efforts is crucial. At Pollenizer, we use JIRA to record every new feature, improvemet and bug we write code for, whilst the code we write is stored in GitHub. When we develop some code and commit this code to the relevant GitHub repository, we add a commit message which relates the change back to the JIRA task. For example, a commit message might be:
git commit -m "[POLLENIZER-123] Refactored some incredibly innovative, experimental and risky business logic"
In the above example, “POLLENIZER-123″ is the key for the JIRA task the code relates to.
Better get an accountant son. Better get a real good one!
So, you’re innovating, you’re experimenting and you’re ready for pay-day. The next step is to get yourself an accountant that specialisises in navigating the utterly (and deliberatly so I’m told) confusing mine field that is the R&D Tax Incentive Programme. An expert in the field will be able to meet with you and let you know whether you’re an eligible entity, if your activities meet the eligibility criteria and whether or not your records cut the mustard. The fee for this expertise is typically a percentage of the refund you recieve or a fixed amount (whichever is the greater), but this will vary from company to company.
So, next time you find yourself “developing”, why not add a bit of “research” into the mix. It could end up paying for itself!