Remind me: what’s the threshold?
Your company’s earnings must be less than $20 million per annum, and you need to be developing ‘new knowledge’. Check out Part 1 for more on this.
How do I apply to claim my 45% tax offset?
Stage 1: Ask yourself these questions:
Do I fulfil the main eligibility requirements? Have I registered my activities with AusIndustry? For your R&D tax credit you must register within 10 months, and before your income tax return. Do your claimed expenses qualify? To claim the full R&D tax offset your claimed expenses should be greater than $20,000 otherwise claiming the offset could become slightly more difficult.
What counts as a ‘claimed expense’?
A claimed expense (technically known as a ‘notional deduction’) is incurred when you’re undertaking your R&D activities. These include:
- Expenditures incurred during R&D
- Depreciation incurred during your R&D
- Adjustments to the assets used for R&D
Stage 2: Is your business controlled by an entity that does not pay income tax?
If your company is controlled by any other companies that do not have to pay income tax (such as a charity), then you may not be able to claim the 45% tax credit.
Note: if you are controlled by a tax exempt company then you may still be able to get a 40% tax credit, so it’s best to check with your accountant or business adviser.
Stage 3: Calculate your tax offset
This is where you claim how much your tax credit will be, and it’s really simple: multiply the total of the deductions by 0.45 (i.e. 45%). For example, Company XYZ is an R&D entity that has undertaken $1,000,000 worth of R&D activities. Company XYZ’s total turnover is $1,500,000 and the company is not controlled by any tax exempt companies. Therefore, Company XYZ is able to claim the 45% tax credit of $450,000.
Stage 4: Lodge your tax credit claim
Once you are able to claim that you’re eligible for the tax credit, you then have to lodge a claim with the Australian Tax Office.
Lodging your tax credit claim will involve keeping records of your expenses; these records will involve documents on how you apportioned expenses between core and supporting R&D activities, and those which were not considered R&D activities. Specific documents you will need include; reports that describe the R&D activities you carried out, who conducted them and the time spent on them. Keep in mind that these records are usually kept for 5 years, so it may be a good idea to recruit an accountant or consultant to assist you with keeping these records intact.
What’s the next step?
The R&D tax credit is quite a cost effective way to further invest in your business. You could invest in things that will increase the value of your business, such as developing proprietary technology to improve efficiency and increase revenue.
Investing in research and development empowers your business to adapt to the future needs of your customers and gain an edge over your competitors, based on the simple fact that if you don’t move forward — you will simply be left behind.
Nat is the Communications Manager at Valiant Finance. She has a double degree in Journalism and Law, and a background in the fintech space, hailing from Asia's largest fintech hub, Stone & Chalk.