With the financial year almost over and the budget offering incentives, many businesses will be talking to their accountants about all things tax-related.
Questions might include:
– ‘What purchases should I make?’
– ‘Should I pre-pay rent?’
– ‘Am I going to make a profit or a loss?’
The answer to this last question will obviously inform whether the taxman is owed money or whether a refund is in the offing.
How your taxable position can change things.
In addition to all these bread and butter issues, more savvy business owners and accountants might also discuss R&D tax offsets. There are generous refunds on offer under the Federal Government’s R&D Tax Incentive program – up to 45% of eligible expenditure – but the level of refund very much depends on a company’s end-of-financial year taxable position. Hence the need for R&D to be factored into whole-of-business discussions before closing P&Ls.
What to be cautious of…
It is important that those inexperienced in R&D tax proceed with caution. There has been something of an explosion in R&D advisers and online solutions seeming to offer a fast track to claims and benefits. While it is true that the R&D tax program is relatively broad-based and can be self-assessed, activities must still be benchmarked against a legislative definition. Justification for a claim must also be defined and registered with the government. Furthermore, it is not unusual for claims to be scrutinised by bureaucrats long after registration has been confirmed.
How to set your business up for sustainable R&D claims.
There is a lot to be said for spending a little more time upfront thinking about how best to characterise project activities and articulate the arguments justifying the “experimental” nature of what has been done. In other words, get the right advice, set your business up for sustainable claims going forward and don’t treat the whole exercise as easy money for little or no effort.
Things to consider when registering your R&D Tax Incentive claim:
• Don’t register broad-based, generic or umbrella projects – that’s a sure way to attract a review from AusIndustry
• Articulate your hypothesis with an “If …then…” statement
• Make it clear that your new knowledge was not a transparent extension of the prior art
Some examples of things to consider on the cost side of your R&D claim:
• Startups – consider whether you paid yourself or how much should you pay yourself – considering other tax and super implications
• Has your business incurred R&D expenditure to an associate? If so, the expenditure must be paid prior to the end of the financial year in order to claim as an R&D tax offset in that year.
• And many more……..
Call us for a chat about maximising your benefits at tax time.