Research and development is an area that many accountants have very little experience in but it is an area that many small business and medium-sized clients are interested in having a clear understanding of what they can claim in their income tax returns and what government grants and special company status are available to assist them on their research and development and commercialisation journey.
The “Research and Development Journey” that a company can undertake including the “Accelerating Commercialisation Government Grant” and the special company status that has been created to assist innovative companies to attract investors by the government offering incentives to those investors to invest into an entity that has qualified as a “Early Stage Innovation Company”.
Research and Development Incentive Rebates are only available to companies and there is a different treatment for companies with turnovers under $20 million from larger companies.
The research and development journey starts with an “idea” and the person with the idea documents what they would like to achieve.
The company is required to conduct prior art/literature searches which these days a significant amount of that research can be undertaken utilising the Internet.
The entire research and development process is on the basis that it is self-assessment and therefore the company has the responsibility to ensure that proper records are maintained of all research into prior art literature that is undertaken and the results of those research activities.
The next step is for the company to identify “hypotheses” for each core research and development activity. The company can then proceed with experimental activities to either prove or disprove the hypotheses.
The research and development project does not have to be successful for the company to be able to claim the incentive rebate. However, it is very important that appropriate records are maintained that summarise what has happened and what the results of the research were.
The company is required to keep records relative to the team members that have been involved showing their name, classification and the hours that they worked on the research and development activities.
Similar records need to be maintained for any contractors, consultants or experts that have been retained to undertake assignments relative to the research projects.
Companies with turnovers under $20 million that have spent more than $20,000 on legitimate research and development activities during the year will be able to lodge an application to claim a taxation rebate of 43.5% on the research and development expenditure and if the company is trading at a loss the company will be able to apply to the Australian Taxation Office for the incentive rebate amount (calculated amount of research and development expenditure multiplied by 43.5%) to be paid direct into the company’s bank account as long as the company’s loss exceeds the amount of the calculated incentive rebate.
The Australian government has instructed the Australian Taxation Office to ensure that this cash refund is paid to the company within thirty days of the company lodging its Income Tax Return subject to the company indicating in The Income Tax Return that it would like to receive the cash refund.
This cash refund in most cases is reinvested by the company in ongoing research and development activities.
Another is the role that is played by the Federal government’s “Accelerating Commercialisation Grant”. This grant is to assist companies who have undertaken research and development activities to then “commercialise” that prototype or the results of the research and development activities so that the product or service is able to successfully enter the market. The government provides a grant of up to $1 million on a 50% funding basis to assist companies to be able to undertake this all-important commercialisation process.
Another key matter is the role that Early Stage Innovation Companies can play in assisting companies who have developed research and development projects and may have successfully applied for the Accelerating Commercialisation Grant to be able to raise capital from investors (normally Sophisticated Investors) because of the attractive benefits that an Early Stage Innovation Company is able to create for investors as a consequence of their investment by a tax rebate calculated at 20% of the shareholder’s investment in the company (subject to limits for Retail Investors and Sophisticated Investors) and for the potential of a Capital Gains Tax free status if that shareholder has retained ownership of the shares for longer than twelve months.
We consider that this journey for a SME client from a “Research and Development Idea” through to being able to claim a Research and Development Incentive Rebate, possibly claim an Accelerating Commercialisation Grant and then to possibly meet the status requirements to be an Early Stage Innovation Company is a fantastic opportunity for the SME and their accountants.
ESS BIZTOOLS has developed product packages for each stage of this journey to assist accountants who are currently the “Trusted Advisors” to be able to remain the key advisors to their growing clients during this very interesting journey. The “Research and Development Product Package” will be available for subscription from 25 February 2021.
You can register for the free webinar on Thursday, 25 February at 11:00am AEST by clicking here.
You are most welcome to visit our website – www.essbiztools.com.au.
If you are interested in obtaining a free, no obligation overview of the Research and Development Product Package as developed by ESS BIZTOOLS to assist accountants to deliver a wide range of services without you having to reinvent the wheel by spending hundreds of hours in writing the material, please “book a demo” on the ESS BIZTOOLS’ homepage – www.essbiztools.com.au or contact Peter Towers:
- Email: email@example.com
- Telephone: 1800 232 088
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