Companies are either eligible for either a 40% non-refundable tax offset or a 45% refundable tax offset on qualifying R&D expenditure. If you believe your company qualifies, you may need to act quickly to ensure you don’t miss out on potentially significant tax benefits, as the registration deadline with AusIndustry for activities conducted during the year ended 30 June 2015 is 30 April 2016. We note that this deadline is strictly enforced by AusIndustry.
Assistance with Registration & Aggregate Turnover
As in prior years, Pitcher Partners is able to assist with the preparation of your company’s application to register – including determining its eligibility to register. We have an eligibility tax checklist on our website to help you determine whether your company qualifies for the R&D Tax Incentive. Please use the link below to access the checklist:
We can also assist with the assessment of the aggregated turnover of your company to determine whether it qualifies for the 45% refundable tax offset or for the 40% non-refundable tax offset.
Comprehensive Details on Projects, Core & Supporting R&D Activities
The AusIndustry ‘R&D Tax Incentive Application: Registration of R&D Activities’ form requires comprehensive details on all the R&D projects undertaken by the company and activities undertaken for each project. We can assist in the process of writing up the project details if required, or review your claim prior to submission.
Companies are required to classify the activities into core and supporting activities and a description of each activity, its objectives and outcome is required. Broadly, core R&D activities are experimental activities that are to be carried out with the objective of generating new information. Supporting R&D activities are those which are directly related to core R&D activities.
Companies are required to maintain records to demonstrate, not only to AusIndustry, but also to the Australian Taxation Office, that the activities carried out are eligible R&D activities and that the company has incurred expenditure related to the activities.
You should also note that when completing the company’s tax return, details will need to be kept of all expenditure related to each project, split on a project by project basis, including:
- Contracted R&D costs (including copies of all invoices);
- Details of direct salary & wages that relate to R&D projects (e.g. time of laboratory technicians etc). The allocation of hours to projects should be supported by timesheets or diary entries;
- Details of any consumables etc used in the R&D activity;
- Details of whether any plant and equipment is used in the R&D activities and if so, the percentage of such use (as supported by log books or other records). This will enable an allocation of depreciation to the R&D claim;
- Any relevant amounts paid to Co-operative Research Centres; and
- Details of the proportion of eligible overheads the company is allocating to the R&D project.
Does the relevant company have a Substituted Accounting Period?
If the company that is conducting R&D has a substituted accounting period ending 31 December 2015, the relevant application cut-off date is 31 October 2016. In respect of any other substituted accounting period, the relevant registration lodgement date is the end of the tenth month following the substituted period end.
Review of the Research and Development Tax Incentive
The Government’s National Innovation and Science Agenda was announced on the 7 December 2015 which initiated a review of the R&D Tax Incentive (Review) to identify opportunities to improve effectiveness and integrity in the scheme, including sharpening its focus on encouraging additional R&D expenditure.
The scope of the Review may include:
- Changes to the definition of R&D;
- Changes to rates and thresholds; and
- Improvement of the program design and/or administrative processes.
The Review is currently underway and it is expected to report to Government in April 2016.
Recent Research and Development case
The Administrative Appeals Tribunal (AAT) has recently confirmed in JLSP v Innovation Australia that clinical trials conducted by JLSP in accordance with a contractual agreement were considered a ‘core R&D activity’.
Specifically the question before the AAT was whether JLSP’s activity was conducted for the purpose of generating new knowledge. Innovation Australia refused to grant JLSP with an advanced finding on the basis that the activity being performed was not an eligible R&D activity. That is, it contended that the activity could not be a core R&D activity if it was not undertaken for the dominant purpose of generating new knowledge.
The AAT rejected Innovation Australia’s submission on the basis that the clinical trials conducted by JLSP satisfied the definition of an eligible R&D activity. The AAT held that the ‘purpose of generating new knowledge must be more than an insubstantial purpose and must be substantial enough to enable the activity to be accurately characterised as conducted for that purpose.’ Generating new knowledge did not need to be the dominant or sole purpose for undertaking the activity.
The AAT was satisfied that JLSP was conducting an experimental activity for the purpose of discovering something unknown and that the outcome of the activity could not be determined in advance. Importantly, the AAT concluded that regardless of the activity being conducted under a service contract, the activities being conducted were eligible R&D activities.
Please ask either your regular Pitcher Partners tax contact or any of the contacts in the Pitcher Partners firms below for further details on the issues raised in this Tax Bulletin: