Research and Development (R&D)
On 8 September 2011, the Tax Laws Amendment (Research and Development) Bill 2010 received Royal Assent, meaning that in most cases, effective from 1 July 2011 the former R&D Tax Concession/Offset will no longer be available to companies and will be replaced by the R&D Tax Incentive.
The reason "in most cases" is mentioned above, is that the new R&D Tax Incentive comes in play for the first financial year commencing after 1 July 2011. This means, those companies who have a substituted accounting period (SAP) whose financial year starts before 1 July 2011 will have one more bite at the R&D Tax Concession/Offset scheme in its current format.
What is it?
Both the R&D Tax Incentive and the R&D Tax Concession/Offset schemes aim to provide Australian companies with financial support, to boost competitivenenss and improve productivity across the Australian economy. This is through the undertaking of research and development with the view to creating new or improved materials, products, devices, processes, or services.
In Brief
THe R&D Tax Concession/Offset uplifts an eligible company's expenditure on research and development by an initial factor of 25% (plus an additional 50% premium uplift in certain circumstances) which results in either a reduction in tax payable or in some cases a cash out of losses incurred at 30%.
The R&D Tax Incentirve provides a 45% refundable tax offset for companies with an aggregated turnover of less than $20million or a non-refundable 40% tax offset for companies with a turnover of more than $20million.
A comparison of these two regimes is set out below:
| Details | R&D Tax Concessaion/Offset | R&D Tax Incentive |
| Minimum Spend | $20,000 unless with RRA | $20,000 unless with RSP |
| Claimant | Company | Company |
| Timing | Within 10 months following financial year end | Within 10 months following financial year end |
| Benefit | Uplift of 125% (or in some cases 175%) with Refundable Offset (cashout) where turnover is less than $5million and Spend less than $2million. | 40% Non-Refundable Offset, OR, 45% Refundable Offset (cashout) where turnover is less than $20million. |
| R&D Activities - Core | Innovation OR Technical Risk | Experimental activities that lead from hypothesis to experiment, observation and evaluation and leads to logical conclusions. |
| R&D Activities - Supporting | For A Purpose | Directly Related in most instances, but dominant purpose in production environment. |
How we can help!
M Squared regularly assists clients with the registration process and the identification and quantification of eligible research and development activities and expenditure as well as ensuring that all the necessary documentation to support a tax concession or tax incentive claim is in place.
How much does it cost you?
It is noteworthy that many clients choose to obtain M Squared's services in this area using a 'success-fee' based methodology, whereby the fee paid to M Squared is a function of the value added by M Squared as a result of uplifting ordinary expenses to 'super' expenses. In the event that M Squared cannot demonstrate a value add arising from their R&D activities, clients pay nothing.
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