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Our People in Taxation Consulting
What in your business is R&D?
Article contributed by Michael Johnson Associates, a Sydney based firm specialising in R&D tax concessions. - www.mjassociates.com.au
If you don’t believe that your business does research and development ("R&D") then you may not be aware that the Government provides tax incentives to encourage more businesses to do more R&D. You may not be aware what is considered R&D in an industrial or business environment and that what your company does to start up a new business or to stay in business may be R&D.
Take this simple test:
Have you always sold the same products made with the same processes with no improvements in either?
Do you intend to sell the same products made with the same processes with no improvements into the foreseeable future?
If the answer to either of these questions is "no", did your business do, or contract someone else to do, engineering or technical development so that you could sell new or improved products or make and provide these more efficiently? This could include:
a brand new product
a changed product
reducing costs by adding new technologies or devices
changing materials, etc.
If the answer to the last question is "yes" then you are an R&D company and you may be eligible for the new R&D Tax Incentive (or the former R&D Tax Concession).
As an R&D company you can get an additional 25% tax deduction on R&D expenditure for 2010/11. For 2011/12 and beyond, this increases with a new tax offset worth up to 45% of R&D expenditure. If, for the financial year just ended you are in tax loss and have a group turnover of less than $5 million you may be able to cash out your carry forward tax losses up to a maximum of $750,000 depending on your eligible R&D expenditure. For the new financial year this opportunity will be extended to groups with a turnover of up to $20 million with no cap (other than how much you spend on eligible R&D activities).
Michael Johnson Associates ("MJA") has been assisting companies from Australia’s largest to small start-up companies to help them determine what activities are eligible R&D, and what costs are able to be included since the R&D Tax Concession program started in 1985. These costs can include labour, a proportion of overheads and production trials including when these trials also make saleable product. MJA has worked with Governments to help make the program as pragmatic as possible and with businesses to ease the compliance burdens. MJA has an excellent record of working with businesses through ATO and AusIndustry audits and reviews. This has been enhanced recently with MJA’s business being registered as specialist Tax Agents in R&D.
From 1 July 2011 the R&D Tax Concession has been replaced by the R&D Tax Incentive. This new law sees the benefit increase from a 37.5% concession to a 45% tax offset (40% if your group has a turnover of more than $20 million). However, there are new and tighter eligibility criteria. MJA has been a strong participant in the development of this new program and is still working with the Government, Treasury and AusIndustry to seek to make the program both workable for Australian companies and to enable it to achieve its goals of encouraging more businesses to do more R&D.
MJA has teamed with Bentleys to extend our services to Bentleys clients. If you think that your company is an R&D company and you wish to discuss the potential benefit to your business, please contact your local Bentleys office.
Senior Manager – MJA