Mugun S Athirajan, Director Quasar Consulting
The recent 2020 Australian Federal Budget saw the government pledge their support for Australian innovation and R&D, announcing a $2 billion commitment to the R&D Tax Incentive (RDTI) program from 1 July 2021. This is a step in the right direction compared to the 2019 budget where there was a potential reduction in support for the program. The RDTI benefits introduced in the 2020 budget (detailed analysis available here) provides companies an opportunity to increase the impact of every dollar spent on their R&D activities, and in some cases help improve their cashflow.
All applicants
- Changes apply from 1 July 2021 (no impact on FY2020 claim)
- Increase of R&D expenditure threshold from $100M to $150M
Applicants with turnover < $20M
- Refundable tax offset set to 18.5% above the company tax rate
- No cap on refundable tax offset amount
Applicants with turnover > $20M
- Simplified intensity test (2 tiers)
- Tier 1 (Baseline rate): 8.5% above the company tax rate for R&D expenditure between 0% – 2% R&D intensity
- Tier 2 (Enhanced rate) : 16.5% above the company tax rate for R&D expenditure above 2% R&D intensity.
Unlike grants which are generally competitive, the RDTI program is self-assessed, whereby any Australian company[1] undertaking R&D activities would be able to claim and receive the RDTI benefits if the meet the RDTI eligibility criteria. While this is great news, the self-assessment does come with a price – in the form of compliance. It is expected that all RDTI applicants must have sufficient documentation to evidence that their R&D activities and corresponding expenditure meet the RDTI eligibility criteria. This had tripped many applicants over in the past, but you can manage this by:
1. Establishing a R&D governance framework
A good R&D governance framework will help you clearly define the R&D roadmap, milestones, project artefacts and funding needs. This will help plan the R&D activities, assign roles and responsibilities, and identify the resources required for the project. The existence of the framework would also help distinguish that the work undertaken is related to R&D activities, as opposed to business as usual activities. This is particularly useful for many companies that undertake both R&D and non-R&D activities.
Once your R&D governance framework is established, it can be applied to all the R&D activities the company undertakes.
2. Documenting your R&D activities and expenditure
The R&D governance framework should include a list of artefacts that will be produced as a result of undertaking the R&D projects. Documenting the R&D activities in accordance with the artefacts defined in the framework will help track the progress of the project, the expenditure incurred on the activities and the resources involved in the project. This will also be useful in substantiating the R&D activities from a RDTI compliance standpoint.
By observing the two key points above, you will be able
to reduce the compliance risks and will contribute to an efficient RDTI claim
process. This should put you on the right track to stretching your R&D
dollars – and whenever in doubt, do reach out to the RDTI experts for advice.
[1] Subject to eligibility assessment
