R&D Tax Incentive
The Australian Federal Government offers a tax incentive for companies undertaking research and development (R&D). We specialise in obtaining these incentives for software and technology companies and startups that are building products at the leading edge of their industry.
The R&D Tax Incentive caters for companies with under $20 million in turnover with a 43.5 cent refundable tax credit for each dollar of R&D undertaken. For companies with over $20 million in turnover, a 38.5 cent non-refundable tax credit is provided. This replaces the normal tax deduction that a company typically receives for an expense, worth 27.5 to 30 cents in the dollar.
Because the R&D Tax Incentive is refundable, it is especially useful for startup companies and as a safety net for mature companies in tax loss or in break-even situations. A startup with no income and $100,000 in R&D expenses will typically receive the full 43.5% as a refund, i.e. $43,500. Tax refunds are also not further taxable at the company level.
What is R&D?
Research and development for software requires that as part of your development, you encounter technical challenges or difficulties that could not be easily solved with normal research. To overcome these issues or to create the functionality that you desire you undertake an “experimental process” to solve the problem. An “experimental process” in software is typically where you have tried different methods, different algorithms, different structures or techniques to solve the challenge.
Key areas of R&D in software suitable for the R&D Tax Incentive:
- R&D is typically done where you are developing on, or interacting with, a new or undeveloped platform or language that requires experimenting to achieve the functionality goals that you are striving for.
- Where you are interacting with a 3rd party software that doesn’t provide adequate documentation or API’s to interface with and requires experimentation to develop the link.
- Where you are developing a data interchange between a legacy system and a new system, ie a legacy database and SQL where there are fundamental incompatibilities in the transfer of data.
- Where you are creating an experimental user interface that requires extensive testing to determine the optimal interface.
- Where you are creating new algorithms to solve a calculation.
The possible projects in software eligible for the R&D Tax Incentive are limitless. We are always happy to qualify a project as to its suitability for the scheme to provide some comfort as to its eligibility.
What can I claim for the R&D Tax Incentive?
For the R&D Tax Incentive we are able to claim a range of expenses that must be linked to the research and development project. Typical expenses are the wages of developers, project managers and engineers working on the project. We assist you by quantifying the expenditure related to the project to ensure that your claim is both maximised and compliant.
Record Keeping for the R&D Tax Incentive
We also assist with the creation and verification of the required documents to evidence the claim. The R&D Tax Incentive requires records to be kept to provide evidence that the claimed activity is occurring and that it is experimental in nature. We assist in the assessment of your existing record keeping process and we are happy to advise where required on ways to make it compliant for the R&D Tax Incentive.