As government schemes go it is hard to beat the R&D Tax Incentive, which pays business up to 45c for every dollar spent on R&D. And this is an entitlement, not a grant, which comes through the ATO. The scheme is not that well known, and many companies in the print and packaging sector may have little idea that they qualify.
When most people think of R&D they imagine egghead scientists wearing white coats with big glasses peering through microscopes in pristine labs, but the Australian government sees things very differently, and so should you.
The R&D Tax Incentive is available to any Australian business that is involved in the development of products, processes, services, systems or software. You may not imagine your printing or packaging business is in R&D but you may be developing a new packing line, a new W2P software package, a new ink blend, a new lifting solution, or any of hundreds of different innovative ideas that mean you are.
The innovation doesn’t need to have been commercialised, in fact the scheme is designed specifically to be of most help to those companies that are in the development process. It comes in the form of tax rebates and tax offsets through the Australian Taxation Office.
The money is intended to be significant. So for example in ballpark terms if your business spent $200,000 on development work last year, and overall you made a loss of more than $200,000 the ATO will give you a refund for $90,000.
If you spent that $200,000 on development, but made a profit of more than $200,000, the government would knock $30,000 straight off your tax bill.
These are very decent figures, which will provide a significant boost to the cash flow of any business. The funding is substantial, and deliberately so. As the mining boom draws to a close the government is putting an increasing emphasis on innovation, simply because this is where the nation’s wealth will come from.
You may or may not have a dedicated development team, and you may not even have a separate development budget. However you may be surprised by how much you are spending on development, and how quickly it adds up. For instance if you as the company owner are spending a couple of mornings a week on a development project then 20 per cent of your salary goes into the budget. Same goes for the rest of your staff. Materials, outside suppliers, equipment depreciation, overhead, they all count towards your total spend, which adds up quickly and is claimable.
If you meet the criteria, then whether you are start-up or established business, in profit or in loss, the Federal Government’s R&D Tax Incentive applies. The R&D Tax Incentive isn’t a grant, it’s an entitlement, which means if you meet the criteria you will receive the funding. It is there waiting for you to claim, make sure you do.
You can apply for the funds yourself, or use a specialist consultancy such as HorizonOne, which accesses these funds day in and day out and will guide you through the bureaucratic maze. To get your entitlement for development work in 2012-13 financial year you’ll need to have your application in by no later than April 30th this year, and you’ll need to get started at least four weeks before then.
Karin Robinson is senior consultant at HorizonOne Consulting www.horizononeconsulting.com
Here are four instances to give examples of the significant funding that is available.
Company A Made a loss more than the R&D spend
Company A spent $200,000 on its R&D activity this year, but made an overall loss of $300,000. The ATO will give a 15% rebate on the $200,000 R&D activity, which is $30,000. It will also allow the company to cash in its losses at the company tax rate of 30%, up to the value of its R&D spend- so in this case 30% of its $200,000 R&D spend is $60,000. Add this $60,000 to the $30,000 rebate and you get $90,000. The ATO will give this $90,000 as a tax refund. That’s a big help to the cash flow for a business in a loss.
Company B Made a profit more than the R&D spend
Company B invested $200,000 in R&D during the tax year. The business is in profit, to the tune of $300,000. Its tax bill will be 30% per cent of that, which is $90,000. However the ATO will allow a 15% rebate as the R&D Tax Incentive. So 15% of the $200,000 invested in R&D is $30,000. That $30,000 comes straight off the company’s tax bill. So Company B’s tax bill is reduced from $90,000 down to $60,000.
Company C Made a loss but less than the R&D spend
Company C spent $200,000 on its R&D activity in the year. Overall the company made a loss of $100,000 during the year. The ATO will allow the company an R&D rebate of 15% of the $200,000 spent on R&D, so $30,000. It will also allow it to cash in its losses on the $100,000 loss, which at 30 cents in the dollar is $30,000. So the total amount the ATO will refund to the company is $30,000 + $30,000 = $60,000. That covers more than half their loss, good news indeed.
Company D Made a profit but less than the R&D spend
Company D invested $200,000 in its R&D. It made a profit for the year overall of $100,000. Tax on that profit would usually be $30,000, at 30%. However the ATO will allow the company to offset its 15% R&D Tax Incentive against this. So 15% of $200,000 spent on R&D is $30,000. So the final figure is $30,000 tax payable on the $100,000 profit, minus the $30,000 claimed as the R&D Tax Incentive = $0 tax payable. Company D’s tax bill is reduced from $30,000 to zero, very helpful.
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