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Changes To The R&D Tax Incentive

Catch up on the current R&D Tax Incentive

If you are an Australian Pty Ltd business doing work on improving, innovating or inventing new products or services, the Australian Government offers a rebate on the cost of your R&D work.

You must be spending more than $20,000 pa, conducting the work in Australia, and you must show that you have created new knowledge.

The rebate assessment process is changing

The process to claim under this Government Incentive was an application as part of your tax return explaining the core activity of your R&D work. In the past, companies could rely on their accountant to take care of the details required. They would ask you for various documents, ask a number of questions and then based on this prepare your claim.

If you have previously been claiming under the R&D tax scheme, this will sound familiar. Your accountant would ask you to also have supporting documents at the ready to substantiate your application in case you are audited.

Why your Accountant can longer complete the application without detailed input from you

The Government have made significant changes to the application process, which puts the onus back on you, the company claiming, to provide detail that was not previously required.

Going forward, your accountant will not be able to ‘fill in the detail’ for you. The changes to the application require the new knowledge you are creating to be directly linked to an experiment.

What this means is that relying on accounting records of payments made to staff and the costs of related goods and services are not sufficient.

Can you talk and write science?

What this means is that you must write a hypothesis, and connect this to your experiments to show how you created new knowledge and confirm your ability to reach the desired outcome.

You will now need to provide your Accountant with:

  • What was your hypothesis? (4,000 characters)
  • What was the experiment and how did it test the hypothesis? (4,000 characters)
  • How did you evaluate or plan to evaluate results from your experiment? (4,000 characters)
  • Describe your conclusions (4,000 characters)
  • What new knowledge was this core activity intended to produce? (1,000 characters)
  • Please explain what sources were investigated, what information was found, and why a competent professional could not have known or determined the outcome in advance (1,000 characters).

Should you worry about being audited?

The number one reason for an audit being triggered for a company was a poor application (see report from the Small Business Ombudsman who reviewed the audit program of the R&D Tax scheme in 2019).

If you get your application wrong, not only will it be deemed ineligible, but any R&D rebates must be paid back with a 50% penalty applied.

But is this likely?

Your Accountant will not put you in a position where you may be audited. Instead what will happen is they will not be able to include many items or work under your claim as they have in the past and the amount of your claim will be must lower than it has in the past.

How to easily avoid reducing your claim amount and triggering an audit

If you haven’t already we suggest you take advantage of our checklist that will help you understand what might have to change with your current documentation.
We also make it very easy to put in place the ‘right’ documents, in the right format and scientific language with our document templates that literally write the hypothesis, experiments and investigation outcomes for you.
Our Templates or Online Training with Templates packages provide your team with the right level of know-how in a cost-effective manner.

How much will your claim amount decrease by?

You may not be concerned with being audited, but our experience of working with companies shows that most are underclaiming by at least 30%. We don’t have impact figures yet under the new application process but we expect this to increase significantly to more like 70-80%.

To date, we have found that when companies take the time to properly review and put in place all of the right processes and documentation to support their claim, they ended up increasing their claim on average by 30%.

Why is this?

Because working through the processes reveals, without fail, items that you could be claiming, but because of lack of documentation, your Accountant has had to leave them out of your rebate application.

Want to understand if this is impacting you?

We have worked with dozens of companies that needed to get ready for an audit or wanted to manage the risk of a potential audit and to look at how to increase the amount they were claiming.
You may be interested in looking at some of our case studies to see how other businesses approach implementing the R&D Tax Incentive.
We offer template packages for the documentation, training to help with systems and processes and audit and review workshops to make sure you are retrospectively and going forward maximising the amount you can claim safely, and not ‘triggering’ an audit due to lack of documentation.
If you would like to talk more about templates, audits or implementation of your R&D program, feel free to book a 10min meeting.
We also run a regular R&D Discussion Group where you can learn more from both us and other companies leveraging the R&D Tax Incentive and are looking to make the process and implementation as slick as possible.

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