Once your body clock re-adjusts after three solid weeks of nocturnal football addiction, you’ll be ready to get your government grant applications sorted. In a football match, the more goals you kick the more chance you have of making it to the next round. Scoring two goals could win you the game. In order for your business to win, surely you should just apply for every single government grant that you could possibly be eligible for, right?
While this approach may sound quite logical, what some businesses don’t account for is that many of the supporters of government grants happen to barrack for the same team. For example, let’s say you are eligible for the R&D Tax Incentive as well as an industry grant administered by the New South Wales Government. You receive the benefit from the state grant first and then plan to apply for your grant through the R&D Incentive program later on. This is where the clawback comes in. Basically the government doesn’t want you to double dip. However, they do recognise that it is in their interest to help you to grow your business so you are able to help them to build the Australian economy.
The clawback applies to companies that are eligible for the R&D Tax Incentive and receive a government recoupment (such as a government grant or reimbursement) that relates to expenditure that is eligible for the R&D Tax Incentive. The clawback doesn’t decrease the grant or offset you receive. However it does increase the income tax you are liable to pay on the recoupment. The increase is called a ‘clawback adjustment’.
So how much of an increase are we talking? The clawback adjustment is an extra income tax of 10% on:
- R&D expenditure and decline in value for which you claimed a notional deduction in relation to the other grant/reimbursement; and
- expenditure and decline in value for which your affiliates and other entities connected with you claimed a notional deduction in relation to the other grant/reimbursement.
On the plus side, for companies eligible for the 45% credit you still receive a benefit of 5%. The 5% is made up of the 45% R&D credit – 10% extra income tax – 30% normal tax deduction. For companies only eligible for the 40% non refundable tax credit, there is no benefit left for that related expenditure. For startups and companies in tax loss, there is still a big benefit to claiming even with a clawback applied, you can still get up to a 35% tax refund.
The idea of claiming through more than one grant scheme may still sound OK, but should always be done after a careful assessment. At Innercode we specialise in helping Australian software and technology companies to access the R&D Tax Incentive. Many of the companies we work with have explored other grants. Some choose to continue with more than one grant and accept that they have to pay the clawback adjustment, and others see more benefits in claiming the R&D Tax Incentive in isolation from other grants. What works for one business may not work for another.
With this in mind, we believe that information sharing and case-by-case assessments are key to ensuring you have the right tools to continue to build your business. To learn more about the clawback adjustment and how it applies to your R&D claim, email us to arrange your free R&D assessment call us on (02) 8004 8951.