How is the R&D Tax Incentive Measuring Up?

How is the R&D Tax Incentive Measuring Up in 2014?

Today’s The Australian newspaper contains an interesting article penned by former Queensland Premier, Peter Beattie, questioning whether recent funding cuts to universities and research institutes is in the nation’s best interest.

A recent study has provided insight into how businesses view the R&D Tax Incentive, 2 years after its inception.

The Incentive offers an increased benefit to claimants compared to the previous scheme (the R&D Tax Concession).  Although the method of arriving at the Tax Incentive benefit is somewhat contorted when compared to the previous Tax Concession, the bottom line is that the benefit for companies with revenues of:

–       Under $20M & loss       = 45% cash rebate for every dollar spent on eligible R&D

–       Under $20M & profit     = 15% additional Net-Profit-After-Tax

–       More than $20M           = 10% additional Net-Profit-After-Tax (whether in profit/loss)

The study found that the biggest concerns held by companies in relation to claiming the Incentive centered around the new definitions of core/supporting activities and remaining within the parameters of required project definitions.

Interestingly, though unsurprisingly, almost half of those surveyed felt that, due to the ongoing iterations made to the legislation, the Tax Incentive was a benefit that could easily be scrapped. With innovative businesses uncertain by their very nature, it is disappointing that a scheme meant to bolster innovation may instead inhibit it, with 81% of companies concerned about lodging an application.

Encouragingly, over 70% of those surveyed engage a third party to complete their R&D Tax Incentive claim on their behalf. Although this indicates that indeed the Tax Incentive is more compliance-heavy than its Tax Concession predecessor, it also shows that businesses continue to recognise the solid benefits the scheme offers. Furthermore, this figure shows that claiming the Tax Incentive is not simply a financial exercise but requires technical insight and knowledge in how best to go about structuring and documenting a claim and the projects it encompasses.