Claiming your R&D Tax incentive is a two stage process (defining the project with AusIndustry, and claiming the spend as part of your tax return), and needs you to keep records
💡Remember you must submit any claims by 30 April for the previous financial year
How does the R&D tax incentive work?
You are likely to be eligible if you:
- Are a company undertaking innovative, unique, non-trivial software, hardware, engineering or manufacturing development (ie it’s not just for software companies)
- Can describe this development as a series of experiments with unknown outcomes from which you have learned as you’ve progressed
- Have spent at least $20K on R&D during the year, including employees and Australian contractors and their costs including equipment, rent and other R&D related overheads
How do you get the money?
Accessing the refund is two-step process:
- You need to describe your core and supporting R&D activities as a series of experiments. The nature of these activities is approved by AusIndustry
- A summary of the eligible R&D spend is included as a specific R&D tax schedule in your tax return (startup savvy tax accountants like Standard Ledger have lots of experience in preparing these).
- If you’re an early stage startup and not yet profitable, you will receive a 43.5% cash refund from the ATO. Technically this is a refundable tax offset, effectively cashing out your tax losses rather than carrying them forward. You can expect the ATO to clear your refund in four to eight weeks after lodging your tax return.
- If you’re already profitable, your R&D claim will reduce the tax that you’d otherwise be paying, but be aware that the benefit is a 16% one (the difference between the 43.5% R&D offset and small business company tax rate of 27.5% … yep it can get a bit technical!)
If you're a typical early stage startup in pre-revenue development mode, and have not made a profit, on a $100k spend it looks like this:
In the current climate of increasing audits, you want to make sure your records are up to scratch.
AusIndustry use this wonderful phrase called contemporaneous record keeping(!), ie real time.
- For financial records, make sure you're able to provide any underlying payroll details or copies of extrenal contractor services you've used for R&D. As an example, as part of Standard Ledger ongoing bookkeeping services we include the Receipt Bank App/email to “Snap n Send” your source invoices you’re also ready with full documentation should you be faced with an audit.
- For evidence of R&D activities, you're going to need to show how you identified and tracked the eligible R&D activities and the basis under which those records have been used to determine the associated R&D spend.
We think that a check-in or two along the way during the year makes a lot of sense - call it insurance if you like, which is why we also suggest an (optional, additional) documentation review service if you're doing R&D.