The government’s R&D tax incentive is one of the most lucrative forms of tax relief available in the country and a leading factor in why more businesses are returning research and development activities to Australia. While the scheme is well-known, only a minority of companies use it to the maximum extent, meaning you could be leaving money on the table.
As a business owner, you may already know that the R&D Tax Incentive (R&DTI) lets you claim up to 43.5% of your R&D costs from your tax bill. Hence, if you spend $100,000 on qualifying activities, you could claw back a massive $43,500 off your corporate taxes (if you earn a profit). If you are a non-base entity for the financial period, you can claim up to 48.5% of R&D costs.
However, what you may not know is how to maximise the R&D tax claim itself. That’s a bit more specialised.
Who Qualifies For The R&D Tax Incentive?
You can apply research tax relief to your accounts if:
- You operate a company (other corporate structures aren’t allowed)
- You conduct your R&D activities in Australia
- You spend more than $20,000 in the financial year on qualifying R&D activities
When applying the research and development tax incentive, you must only consider expenses related to R&D. Acceptable forms of spending include lab, data, and research personnel-related costs, or services you pay to a third-party research organisation to conduct R&D. General business expenses such as marketing or legal are excluded.
How To Maximise Your Claim
Maximising your R&DTI claim requires organisation and planning. However, getting it right can save you a lot of money on your tax bill.
Keep Records Of Your R&D-Related Expenses
First, set up a system to record all your R&D-related expenses. Ensure you retain receipts, invoices, and other transactional documents proving eligible spending. If the government investigates your accounts, you can fall back on these to prove their validity.
You should also maintain other documents and record-keeping systems, including:
- Records of your in-house R&D activities
- Records of the R&D activities undertaken by third parties you pay
- The time spent on R&D activities
- Staff timesheets detailing time spent on R&D and non-R&D activities (so you can divide up R&D labour costs more accurately)
- Records of your R&D projects and plans setting out what you want to achieve
Plan Your R&D Spending Strategically
You can also maximise your R&D tax claims by planning spending strategically. For example, suppose you are currently spending $15,000 per year on R&D. To benefit from the offsets, you would need to bring spending forward or push it back between tax years to meet the $20,000 threshold.
Likewise, you might run a larger firm bumping up against the annual $150 million limit. In this situation, you could postpone spending to even it out more to take advantage of offsets.
Check Your R&D Spending Qualifies For The Tax Incentive
Another strategy is to check your R&D expenses to ensure they qualify for R&DTI in the first place. Sometimes, costs that don’t fall under the scheme can appear in your accounts, presenting a liability during external audits.
You should also check for additional costs to include in your R&D spending. For example, you could look into your capital expenses and ask whether you could include those relating to R&D (instead of focusing solely on direct costs). Prioritising spending to focus on R&D efforts can reduce taxes further.
Monitor Policy Changes
The Australian government changed its R&DTI policies on 1 July 2021 and may do so again. Therefore, it also pays to stay updated with whatever’s coming down the pipeline. Sometimes, the authorities may change the scope of what qualifies as R&D spending, driving substantive changes to your accounts.
Use Technology To Keep Better Records
Lastly, you could also try using technology to keep better records of your R&D spending. Many businesses miss out on the maximum offset because they aren’t keeping the proper documents. Today, various project management tools are available that can track things like how long employees spend on R&D projects and activities associated with them. Use these to streamline your processes and prevent any qualifying expenses from slipping through the cracks.
Do you need help maximising your R&D tax claim? If so, contact our team at enquiry@primefinancial.com.au or fill out the form below. We'd be happy to explore how we can assist your growth.
