Do You Qualify for the R&D Tax Incentive?

It’s not an exaggeration to say that small businesses are the lifeblood of the Australian economy. As of 2020, small businesses accounted for 98.4 percent of all businesses (as per the ATO definition of a small business according to turnover).

Despite this, running a small business is by no means easy. There are many challenges faced by small business owners, particularly given the on-going effects of the Covid-19 pandemic. Many states in Australia are still bouncing in and out of lockdown, making it incredibly difficult for small businesses to find any sense of normality. Many business owners have suffered as a result.

The good news is that the Australian Government is aware of the challenges of running a small business, even at the best of times. As such, they offer a number of different grants, rebates, and offsets, that are designed to help up and coming Australian companies access the tools and resources they need to make a mark on their industry.

If you run a small business and are wondering what kind of subsidies are available to you, it’s a good idea to contact tax accountants in Sydney. Their knowledge in this area will help you make the most of the Australian Government’s programs, including the R&D Tax Incentive.

What is the R&D tax incentive?
While small business owners are often concerned with the day-to-day realities of running a company, it’s very important that you also look long term. Undertaking research and development can open up all types of new opportunities, helping you to become an industry leader in your field.

However, research and development is often quite expensive, particularly if you don’t know what the outcome will be. This is where the Research and Development Tax Incentive (R&DTI) can assist.

The R&DTI is designed to help companies grow by offsetting some of the costs associated with engaging in research and development. The Australian Government wants to encourage eligible companies to participate in these activities, as industry-leading businesses will only help the Australian economy.

It’s important to note that not all businesses qualify for this scheme and not all activities can be deemed ‘research and development’.

Does my business qualify?
The R&DTI operates via self-assessment, meaning you assess whether or not your business is eligible for the program.

To start with, you can only claim this benefit if your business is deemed to be an R&D entity. An R&D entity is one that meets any of the following criteria:

● Is incorporated under Australian law
● Is incorporated under a foreign law but as a business owner, you are an Australian resident for tax purposes
● Is incorporated under foreign law but as a business owner, you are both:
● A resident of a country with which Australia has a double tax agreement that includes a definition of ‘permanent establishment’ and,
● Carrying on a business in Australia through a permanent establishment as defined in the double tax agreement.

Further information about eligible entities can be found on the ATO website. Alternatively, contact tax accountants in Sydney to discuss your individual situation.

In addition to providing your eligibility as a business, you must also take care to ensure that your research and development activities are in-line with the approved guidelines.

To start with, generally only R&D activities conducted in Australia are eligible for the grant. There are some exceptions to this rule, further information can be found by visiting the website of the Department of Industry, Innovation, and Science.

R&D activities can be broken up into two broad categories; core and supporting. Eligible core activities are those that meet the following criteria:

● An activity whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience. The outcome will be determined by applying scientific principles.
● An activity that is conducted for the purpose of generating new knowledge

Supporting activities, on the other hand, are those that directly relate to core activities but do not fall under the specific definition. A supporting activity can, for example, help with the general running of your business but its dominant purpose must be to support R&D activities.

Finally, most businesses will only be able to apply for the R&DTI if their nominal deductions for an income year are at least $20,000. There are exceptions to this rule, contact a tax accountant if you have further queries.

How the Australian government is helping small businesses
The Australian Government offers a wide range of subsidies in addition to the R&DTI, which are designed to help your business get ahead of the game. While these grants are relatively easy to apply for, many businesses are put off at the idea of pursuing these opportunities as they find the terms and conditions too complex or are not sure whether they are eligible.

If you fall under this category, it’s a great idea to contact tax accountants in Sydney. An accountant can not only help you save money, but can use their industry knowledge and experience to identify opportunities for growth and development in your business.