It’s here! The new R&D Tax Incentive presence on business.gov.au
You might remember our quick heads up in the April edition that there was a new R&D Tax Incentive web presence coming. Well... it has arrived!
We’ve been listening to your feedback and have redesigned the R&D Tax Incentive pages on business.gov.au.
The final outcome is a great new look with simplified R&D Tax Incentive content - making it easier for you to find what you need to know and understand.
Don’t just listen to us, check it out for yourself at R&D Tax Incentive.
And while you are there, drop us a note to let us know what you think. Do you like it? Can we do better? We are listening!
As part of a broad refresh of web content in the Industry, Innovation and Science portfolio, information on the Review of the R&D Tax Incentive, including submissions to the Review, has been moved to the R&D Tax Incentive page on industry.gov.au.
A call for all advance and overseas 2016-17 finding applications
The 30 June deadline to lodge applications is fast approaching!
If your company balances its books on 30 June and you intend to lodge an application for an advance or overseas finding for activities undertaken in 2016-17 then you need to hurry up!
Applications are due before the end of the income year in which the activities were conducted or commenced. This means that the deadline to submit applications for advance or overseas findings for end of financial year companies is 30 June 2017.
Don’t forget, expenditure on overseas activities cannot be claimed without a positive finding.
Tips for applying
While we are on the topic of advance and overseas finding applications, here are five tips from our assessors to help smooth your experience when applying.
Tip 1: Include all the relevant activities for your advance or overseas findings application
To be sure that your advance and overseas findings applications are complete you need to be aware:
- Advance finding applications are for activities that are conducted exclusively in Australia.
- Overseas findings applications must include all Australian and overseas R&D activities and expenditure (you can ask us not to make findings on your Australian activities).
- For overseas findings you need to show that at least one of your Australian core activities can’t be finished unless the overseas activity is undertaken. When you do this, you need to show that each activity meets all of the eligibility criteria. The Australian core activity cannot be an earlier project or series of activities.
Tip 2: Describe the experiments involved in the core R&D activities
When you describe your experimental work you should include the parts of the experiments such as:
- The objective – what you want to prove or discover?
- Your hypothesis – the expectation you have of what one variable will do to another.
- Your experimental methods – what did you do? How did you do it? How did you collect and analyse the data?
And if you finished the activity before you submitted your application:
- The results – what were the outcomes of the experiments?
- Your conclusion – was your hypothesis right or wrong?
Tip 3: Explain how the supporting R&D activities are directly related to specific experiments
When you describe your supporting activities remember to include:
- which experiments are being supported, and
- how it directly supports the experimental activity.
Don’t describe activities that support the core activity by supporting the whole project because these activities won’t have the direct relationship that is needed.
Don’t create supporting activities for expenditure items that should be apportioned (on a reasonable basis) to other activities.
Tip 4: Describe how each overseas activity meets the eligibility conditions
You must describe how each overseas activity meets the eligibility conditions by:
- telling us which Australian activity cannot be completed without the overseas activity and why that’s the case,
- telling us why the overseas activity could not be done in Australia,
- explaining how you arrived at your conclusion that what you needed was not available in Australia, and
- making sure the Australian and overseas expenditure covers all of the relevant activities. Australian expenditure must only include expenditure on the activities that are undertaken wholly in Australia.
Tip 5: Ensure Australian activities are put into the application form first
You will find that entering the Australian activities into the application form first means you can select them from the drop down box when you tell us which activities are completed by the overseas activities.
Review your eligibility carefully before you submit your application!
An April 2017 Administrative Appeals Tribunal decision provides a timely reminder that companies participating in the R&D Tax Incentive need to be careful to get their applications right because some errors cannot be fixed and it can stop them from getting the incentive.
The companies had incorrectly declared in the overseas finding application forms that they were not members of a multiple entry consolidated group, or that they were the head company of a multiple entry consolidated group. The companies were in fact subsidiary members of multiple entry consolidated groups.
These errors misled Innovation and Science Australia when it made the overseas findings. The errors meant the findings had no effect because the companies were never eligible to apply in their own right for a finding. The Tribunal found that it did not have the power to correct these errors.
Read more about the AAT decision on DZXP, KRQD and QJJS and Innovation and Science Australia.
Routine business activities are not R&D
In May 2017, the Administrative Appeals Tribunal made decisions that serve as powerful reminders that the R&D Tax Incentive is only for experimental research and development activities, and activities that support them in a direct, close and relatively immediate way.
Routine business operations are unlikely to fulfil these requirements.
Innovation and Science Australia (Innovation Australia at the time) conducted reviews on activities and found that they were not eligible for R&D assistance. The companies disagreed with the decisions and applied to the Tribunal for an independent review.
The Tribunal agreed that the activities were not eligible following Innovation and Science Australia’s arguments that the companies were seeking to characterise ordinary mining processes as R&D activities. In brief:
- testing that was excessive in scale and time was found to be not conducted for the purpose of acquiring new knowledge
- activities to trial a refined waste oil and diesel mix were not conducted in a systematic manner, did not involve innovation or high levels of technical risk, and were not conducted to acquire new knowledge
- activities to design new excavator buckets were not systematic, experimental or investigative.
This article is important reading for anyone participating in the R&D Tax Incentive.
More SMEs conducting R&D in 2015-16
The R&D Tax Incentive registrations for the 2015-16 income year show a record number of companies are engaging in research and development to grow their businesses! The number of companies registering for the program was up by 9.3% at the end of March 2017, compared to the previous year.
R&D expenditure registered by large firms (with a turnover of more than $20 million) has fallen by just over 15%. This decline in R&D investment is particularly noticeable in the mining, construction and – to some degree – manufacturing sectors, in line with broader economic trends.
However, R&D expenditure registered by SMEs has increased almost 10%, when compared to the same period in the previous income year.
The program is on track to have more than 3,000 new companies this year. Around 90% of the new businesses are small-to-medium enterprises (SMEs) with a turnover of less than $20 million.