Research and Development Tax Incentive(R&D Tax Incentive)

The Research and Development tax incentive(R&D Tax Incentive) is the government program that provides the best government support for startups in Australia. It is available to businesses of all sizes that conduct eligible R&D Activities. The government spends about $3 billion each year for the program, and two thirds of that amount goes to companies with less than $20 million gross revenue. Startups are the biggest beneficiaries of the R&D Tax Incentive as they receive the 43.5% refundable tax credit that provides a cash infusion to an innovative startup. If you are a startup company and are intently doing R&D, the R&D incentive program should be a key part of launching your business.

At Innercode helping software and technology companies to access the R&D Tax Incentive is one of our specialties. We know how important the incentive is for startups so no matter the size of the claim we provide a comprehensive service that scales as your business grows.

How does the R&D Tax Incentive work for startups?

The government uses the company tax return as a way to distribute much needed funds for startups. It does this through tax refunds that ultimately land in the companies bank account as a tax free payment. To apply a company must first lodge an application form with Ausindustry and then an R&D Tax schedule as part of their tax return. At Innercode we help from start to finish for both the claim form and the company tax return.

How much can you receive, what are my chances of success?

The great thing about the R&D Tax Incentive is that it is an entitlement program, which means that any company doing R&D in Australia that meets the criteria, will receive the benefit. It is not a competitive grant and it can be relied upon so long as the company continues to meet the criteria of the scheme. The benefit for a pre revenue startup is that for every dollar they spend on R&D expenses such as labour ie wages/contract.

Startup companies who successfully receive the incentive typically have the following in common:
 1. At least $20K minimum expenditure on R&D during the financial year

R&D related overheads can include Salaries, wages, contractor fees, equipment, rent, web hosting, cloud service, and hardware costs. We can help to maximise your expenditure by quantifying the expenditure you can claim. Our experience with software and technology companies means that we know how to get the most out of your claim. We can also assist with the record keeping requirements to keep you on track with compliance.

2. Innovative activities of a project and the scientific process

It is very common for startup companies to offer something new to the market and including developing new products, however this is commonly confused with conducting eligible R&D Activities. The definition of R&D in the legislation applies not to the project as a whole but to specific technical activities involved to complete it. If a project is innovative or novel but the activities involved to create it are not using the systematic experimental method and meet the new knowledge requirements, then R&D tax incentive cannot be claimed.

We can help with clarifying how the software activities or hardware activities you are doing or plan to do can meet the scientific process requirements of the Ausindustry scheme. The requirements to meet are strict and don’t fit into the normal software development cycle process. Therefore to claim a software based claim, particular processes need to be undertaken and documented. Software Development is one of the most challenging industries to access the scheme, at Innercode, we specialise in taking on that challenge.   

3. Project core activities that attempts to fill in a knowledge gap and try to create new knowledge in the process  

It is to be expected that a company make an effort to conduct a literature review or consult an expert in the field before claiming that their project activity is an R&D experimental activity. In many cases, a technical uncertainty that a project activity aims to shed light on can be resolved by applying expertise. To claim R&D activities they must be beyond existing knowledge and expertise.

Some examples of activities that may qualify as R&D activities are:

1. Creating a new algorithm or significantly improving the existing ones

2. Invent new approaches to image/video processing

3. Developing new data structures or improving the existing method of capturing, storing, and manipulating data

4. Developing state-of-the-art or novel approaches for building software or functionality of a system.

We can help with substantiating what the new knowledge you are creating as part of the project that would meet the criteria of the scheme. We can also help to put in the processes and documentation to evidence the new knowledge you are generating.

4. Good record keeping

Startup companies are always striving for efficiency and hence, it is not surprising to see that majority of them adopt agile methodology for project management and software development. However, with agile, the documentation stage is usually shortened. However to be successful with an R&D Tax Incentive it is important to keep detailed documents or records of R&D activities including literature reviews, consultations with experts, experimentation plans, . In this way, it is easier to prove that a project activity is indeed an R&D activity by legislative definition. These companies also kept a record of expenditures relevant to their R&D claim.

We can help with providing very specific advice on record keeping in a way that can best fit into your existing systems and processes. We recognise that it is best to harness the tools that you already use rather than a brand new one. This leads to a much better rate of adoption.

5. Doing innovative and non-trivial projects that are meant for sale, lease, or hire but not for internal administration use

Some organisations, startup or not, incorrectly claim activities that solely benefit their own business processes. Activities that are conducted for projects relating to HR management, accounting, resource plannings, and the likes are business as usual activities and hence, cannot be considered as eligible activities for the claim.

Self-assessing the eligibility of your R&D activities may seem daunting. But by having the right advice straightaway, you can be sure of maximising your R&D tax claim. We at Innercode have years of experience delivering R&D tax incentives to many software and tech companies, most of them were startups when we first assisted them. Through our streamlined process of analyzing claims, we are confident that we can help you determine your eligible projects and activities in just a few hours of your time.

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Post Author: AdminInnerCode

119 Willoughby Road Crows Nest

NSW 2065

contact@innercode.com.au

(02) 8004 8951