‘Is there any chance that the government will hand over the cash up front to help fund my development?’ Maybe.
This question is more common than you may think. Like many questions relating to R&D it’s more of a grey area than a straight out black and white. This is because every company’s situation is different. That said, this month we thought we’d tackle what AusIndustry refers to as ‘advance findings’.
An R&D entity (if you’re asking the question, that’s probably you) may apply to AusIndustry for an advance finding in relation to activities that are not yet able to be registered. Such activities may be in the process of being conducted but have not yet been completed, or may not have been conducted by the time you lodge your R&D Tax Incentive claim.
So, what does AusIndustry look for in an advance finding application? To start with, in relation to activities that have not yet been conducted, AusIndustry must be satisfied that those activities will be conducted in the current or within next two income years.
When registering an activity for advance findings, the following process applies:
• That the activity is a core R&D activity. (Meets the definition in section 355-25 of the ITAA 1997); and
• That the activity is a supporting R&D activity. (Meets the definition in section 355-30 of the ITAA 1997)
In the event that AusIndustry is not convinced of the representations of a particular ‘activity’ it will not be included, or if they determine that only part of the ‘activity’ satisfies the requirements for R&D then this part, and the costs associated with the activity form the advance findings registration.
It’s important to note that an advance finding is not the same as registration and cannot be substituted for it. In order to be eligible to claim an R&D tax offset on the activities in question, the R&D entity will need to register the activities that are subject to the advance findings in relation to each income year in which the activities are conducted.
With a large proportion of our clients working in software development we find a general attitude towards climbing unexpected hurdles within their work to be optimistic. This is just as well because the R&D process is not without its challenges and in the case of an advance finding it’s important to understand the limitations as much as the opportunities.
Let’s say the R&D entity has had the green light from AusIndustry and has received an advance finding, however the direction of the original plans have taken a different path to the point where they are materially different from what was described in the advance finding. If this scenario sounds familiar, chances are that your advance finding will no longer apply to the activity conducted. (So that’s the bad news out of the way, please don’t shoot the messenger!)
However, all is not lost. Here’s the silver lining: If the plans change and the activities are materially different to those described in an advance finding you may apply still apply for one in relation to the different activities.
For those about to jump in the car and drive to Canberra to collect your cheque from Tony, make sure you’ve ticked all the boxes so that when (not if, it happens to everybody at some point) the AusIndustry reviewers knock on the door you’ll be ready.