Is your company doing eligible research and development (R&D) activities? Your company may just be eligible for a government grant such as a tax offset. The offset may vary from 43.5% or 38.5% for costs incurred on eligible R&D activities depending on the company’s annual aggregated turnover.
To learn more about this, I recently interviewed Ben Cusack of Bulletpoint, the R&D grant experts who help business owners access government grants.
WARWICK: What is the main goal of an R&D grant?
BEN: The Australian government wants Australia to be more competitive and to do that is to grow the IP in Australia and then export that. So that's their main agenda and they want to encourage R&D rather than just making a commodity product, they're actually investing in making something different that they can charge a premium for. So there's a grant program called the R&D Tax Incentive and in simple terms, if you are an expert developing something new, novel, and unique and you are spending money on that, then you can get up to 43.5% back from the government.
WARWICK: Who is eligible for the R&D grant?
BEN: The main criteria they have you hit must be a company structure as opposed to trusts, partnership, or sole traders. You need to be an expert in developing something that’s new, novel and unique. If you could already predict the outcome of your project, then it may not be eligible for R&D.
WARWICK: Is there a required revenue turnover to be qualified for the grant?
BEN: There is no limit at this stage on what sort of turnover. I guess we're more in the start-up market so a lot of the confusion is that you don't need to have any revenue in order to access. You just need to have costs and cost is what triggers the eligibility for the program. Also, it's a refundable offset. It's not just a reduction of your tax. Some people will think, "Well, I'm not paying any tax this year so it's no point to me," but in actual fact, the government will put cash into your bank account if you spend money on eligible expenditure.
Warwick: What are some of the mistakes people make in applying for an R&D Grant?
Ben: People assume that their time automatically has a value and that's if they're working for free and not charging the company a lot of money or if they're paid a hundred thousand dollars in their previous job, but, for this new company, you can't believe they're not earning the same amount of money. You can't claim opportunity costs.
Common mistakes are that I've seen when people have come to me in the past and they've done it themselves previously is that they assume all their activities are R&D.
So, I've seen people ... if you were sitting there and you know, doing, literature search or Googling to find what others have done or applying for a patent or getting IP protection, that doesn't always necessarily qualify as R&D. You need to have a core activity, which is where the experiment takes places and you have supporting activities that could be eligible but they need to form the core activity.
Warwick: What about if you were paid a salary from the company? Right so the percentage of your time that's spent on R&D you may actually be eligible to include in your submission.
Ben : Correct.
Warwick: What are some the type of expenses that are often overlooked in an R&D Claim?
Ben: Whilst you You can't claim opportunity costs, other things we can look to include are overhead costs so, you have electricity, Internet, rent.
WARWICK: Does money have to be spent locally in Australia? Does overseas investment qualify?
BEN: It has to be Australian based expenditure and activities. So developers overseas don't count toward that. It needs to be Australian based developers and you also can't just rely on employing an Australian development company to satisfy 100 percent.
WARWICK: If a small business owner identifies himself as R&D eligible, how can they start the process of applying for one?
BEN: What you need to do is submit an R&D Tax Incentive Activity Registration, where you document what your business does and other important information. You then lodge that with the body, called AusIndustry, and then once it is registered, you get a registration number and then you need to include the expenditure in an R&D schedule of the tax return. That's what triggers the R&D payment.
R&D grants are a really attractive option for growing, innovative companies. If you think you might be eligible or you would like to hear more about how R&D might be applicable for your business, then please give our office a call.
To know more about R&D grants and assistance on your tax inquiries, feel free to call us at (02) 4353 3889 or leave a message on the comment box below.
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