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Funding your future with the R&D Tax Incentive

Funding your future with the R&D Tax Incentive

Funding your future with the R&D Tax Incentive

With the release of the 2020-21 Federal Budget, and an additional $2 billion dollar investment into expanding the R&D Tax Incentive, the Federal Government has ended the uncertainty surrounding the future of the program, acknowledging the power of investing in research and development in order to stimulate growth.

The ‘Tax Plan for COVID-19 Economic Recovery’ may have been a reactive response to the pandemic, but the proactive measures contained within this plan effectively improve the benefits for almost all claimants:

  • For smaller R&D entities with an aggregated turnover less than $20 million, an 18.5% R&D benefit will apply
  • For larger R&D entities with an aggregated turnover greater than $20 million, a scaling benefit of between 8.5% – 16.5% will apply depending on R&D intensity (a measure of eligible R&D expenditure as a proportion of total company expenditure)

Small Business Diagram

Large Business Diagram

Whilst these benefits might appear to boost the “Big Guys” the reality is that the R&D Tax Incentive discriminates in favour of the small business operator, providing a maximum 43.5% cash refund on all eligible R&D activities.

By incentivising the cost of undertaking activities with uncertain outcomes, whether businesses are cleverly pivoting their products and services, overcoming production, manufacturing and logistics challenges or any number of obstacles that emerge in rapidly shifting business environments, these changes target the shared need of all companies choosing to adapt and innovate.

Whilst companies typically invest in R&D to improve their competitiveness and ongoing profitability, the knowledge produced often extends beyond the company conducting the R&D benefiting the economy as a whole.  Fundamentally, government incentives are measures designed to facilitate and encourage particular policy outcomes, focussing assistance on activities that are likely to deliver economy-wide benefits that would not be enjoyed in the absence of public support. Accordingly, when preparing a strong application, it is important for businesses to be both well prepared and well informed.


The Importance of Preparation & the Value of Advice

Effective preparation for R&D Tax Incentive Claims should capture both the research and development activities conducted as well as the costs incurred, in real-time!

Through contemporaneous record keeping, businesses can clearly show the systematic progression of a project; from the research and ideation phase, to developing experiments that test theories, observing and evaluating their outcomes whether successful of not, and ultimately forming logical conclusions. By following a systematic approach, businesses are both more likely to generate knowledge that ultimately benefits their project and well equipped to substantiate their activities in order to present a fully developed application.

Whilst the advantages of real-time record keeping are clear, research and development proceeds differently for every company, the benefits to businesses that are well informed and advised of the opportunities available to claimants of the R&D Tax Incentive remains the same.

If you need help assessing your activities, evaluating your eligibility, or structuring your projects, our team of experts are ready when you are!

Take our R&D Eligibility Quiz here to find out if your business may be eligible to claim the R&D Tax Incentive before filling out the lengthy R&D Tax Incentive application.

The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.

Alex Canning
If you are interested in finding out how the ABA team may help you in applying for grants and incentives be sure to get in touch!

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