WHAT IS THE AUSTRALIAN R&D TAX INCENTIVE?
OECD figures show Australia is one of the most generous countries in the world when it comes to supporting research and development, with Government investment in R&D growing by nine per cent over the past decade.
Of the about $9 billion Australian taxpayers invest either directly or indirectly in supporting R&D each year, about two-thirds comes from the R&D Tax Incentive. The incentive encourages companies (and other eligible entities) to invest in R&D activities by reducing their overall income tax liability.
It’s a great scheme, with companies able to offset either 38.5 per cent or 43.5 per cent of the cost of eligible R&D activities against the tax paid on that company’s annual aggregated turnover. The idea of the incentive is that it boosts the competitiveness and productivity of the Australian economy by encouraging R&D activity that might not have happened otherwise, including incentivising smaller firms to do research. For the companies it supports, it’s also designed to provide easy-to-access and predictable support. For those who make an operating loss, the incentive is provided in cash.
Eligibility for the R&D Tax Incentive
To be eligible for the R&D Tax Incentive, companies must be incorporated, must be conducting R&D activities that meet the criteria outlined in the relevant legislation, and must have incurred eligible deductions of at least $20,000. You also have to register your R&D activities with the Department of Industry, Innovation and Science before you can make a claim. (Full eligibility criteria are available online.)
There are two core components to the incentive. The first is a 43.5 per cent refundable tax offset for eligible companies whose aggregated turnover is less than $20 million, and the second is a non-refundable tax offset of 38.5 per cent for all other eligible entities. Some of these entities may also be able to carry forward their unused offset amounts to future income years.
If the R&D Tax Incentive has one shortcoming, it’s that the funds can only be accessed once a year, at tax time. Quite simply, it takes too long for eligible companies to receive the funds they need. The Australian Government is sitting on a report which makes several recommendations to improve the incentive, including paying out quarterly. As yet, however, there has been no hint the Government is going to adopt these recommendations.
Industry has responded to cash flow problems by providing R&D funding solutions. Radium Capital’s Radium Advance is an R&D finance product that bridges this gap and solves the cash flow issue. You can read more about Radium Advance here.