Tips to prepare for the R&D Tax Incentive deadline

Active innovation and constant resourcefulness are vital to a business’s success. Tax incentives are available for those businesses undertaking research and development (R&D) activities. Such businesses should take note that the deadline to register R&D activities for the 2011-12 financial year is April 30, 2013 if they haven’t yet done so.

The R&D Tax Incentive, which recently replaced the R&D Tax Concession, has two core components:

  • a 45% refundable tax offset (equivalent to a 150% deduction) for eligible companies with an aggregated annual turnover of less than $20 million, provided they are not controlled by income tax exempt entities, and
  • a 40% non-refundable tax offset (equivalent to a 133% deduction) for all other companies.

Eligible companies claim these incentives in their company tax return. As a general rule, to be eligible – a business needs to be a company, needs to be undertaking some form of experimental activities (referred to as “core” and “supporting” R&D activities), and must have incurred more than $20,000 R&D expenditure for the year.

Eligible R&D expenditure may include:

  • operating costs such as salaries, consumables and contractor costs incurred on R&D activities, and
  • the decline in value of plant and equipment used for R&D activities.

Before you claim the R&D Tax Incentive however, you must first register your R&D activities with AusIndustry.

You must register your R&D activities:

  • for every income year you want to claim the incentive
  • prior to claiming the R&D tax offset in your company income tax return
  • within 10 months of the end of your company’s income year (for example, if your income year ends on June 30, then you must register with AusIndustry by April 30 of the following year).

Companies should collate all the necessary records, complete the detailed application forms, and separate their “core” and “supporting” R&D activities.

Record keeping is critical to your application so you need to show business and tax records that support your claims for R&D. Your records must either be in English – or easily translated into English – and you must keep them for five years after you make a claim as the ATO and AusIndustry may ask to see them. Below are some examples of acceptable records:

  • project plans and design specifications
  • contracts between yourself and people working for you or third parties for which you have agreed to develop a product
  • progress reports; sales and purchase tax invoices; receipts; bank account/financial/ credit card statements; bank deposit books and cheque butts
  • diaries, timesheets, expenditure journals and cash books
  • R&D working papers, apportionment-based log books
  • employee records such as copies of tax file number declarations, wage books, time sheets and super records
  • motor vehicle expenses, including logbooks
  • debtors and creditors lists
  • records of depreciating assets; stocktake records; records of any private use in relation to assets or other purchases.

Records that are backdated or contain vague details of the R&D activities undertaken are not considered appropriate. For assistance or guidance on obtaining proper advice when it comes to registering for the R&D Tax Incentive, consult this office.

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