Many of those who have invested in R&D over the last 20 years will be familiar with the former R&D Tax Concession scheme. It provided a corporate tax rebate based on ‘eligible’ R&D investment at ‘income deduction’ rates varying between 125% and 175% of the investment, depending on the type of activity paid for (and in which years the investment occurred). A key distinction was between what comprised ‘core activities’ and ‘support activities’.
Of course, this did require quite a bit of expert record-keeping to prove to the taxman that the activities were genuine R&D as defined in the Tax Act.
The system was generally thought to provide a good incentive, but was criticised on some fronts and was also seen to be open to some ‘over-claiming’, particularly in the area of what could be classified as ‘support activities’.
The area of software development also proved a difficult one under the old scheme, with many ‘in-house’ software development activities failing to attract the incentive.
From 1 July 2011 the new R&D Tax Credit scheme came into effect. This scheme has a number of significant differences from the old scheme, most aimed at making the system easier to use, and to redress some of those difficulties mentioned above.
Without going into too much detail (as we are, after all, patent attorneys, not tax accountants!) the highlights of the new scheme include:
- the incentive is now available to a wider range of companies, with the rules on Australian ownership of resultant intellectual property (IP) having been relaxed. The criteria is now based around the activity actually occurring in Australia;
- the effective rebate ‘rate’ per R&D dollar has increased for all entities, and more so for smaller entities;
- the Tax Credit is now ‘below the line’ – meaning the rebate is calculated as an after-tax reduction in tax paid;
- for smaller entities (turnover of less than $20M) the Tax Credit can be paid in cash if the company is not in profit and therefore not paying net tax;
- the rules around software development have been relaxed, enabling much more of this key activity to attract the benefit.
However, the rules around the eligibility of ‘supporting activities’ have been tightened, excluding claims for activities that are not solely provided to support the R&D effort, but which also support much of the ‘business as usual’ activity (e.g. roads built to access both R&D and production activity).
If you are interested in finding out more about how to access these benefits, Franke Hyland are happy to recommend some REAL experts in the field to help you!
by Adam Hyland