5 Biggest Questions on Australia’s R&D Tax Incentive

02/11/2017

By Stuart Reynolds, partner at Fullstack Advisory

The Australian government’s flagship operation for funding innovative technology allocates over AUD 3 billion annually. The current R&D Tax Incentive legislation, however, provides a significantly detailed maze of criteria which founders should be aware of before approaching the grant.

Related reading: Top 5 Australian government grants for small businesses you should know about

Preparing the R&D Tax Incentive application for early stage ventures on a regular basis, we walk through the 5 major questions asked by founders around the process.

1. “Is our technology innovative enough for eligibility?”

What AusIndustry considers here is whether your technology is ‘state of the art’ that is, has it been done by the rest of humanity before. 

Many tech companies from the surface can seem like copy-cats of each other (i.e. Google vs Yahoo). What is required is to look beyond the user interface to the back end – the algorithms – holding it all together. Are these unique and are these providing an innovative new feature – usually advancing different characteristics like speed, utility, security, intelligence, automation.

Indeed some your software may been pulled from off-the-shelf sources, but if you have taken the software further to add new tech features & functionality then you may be considered eligible. Even the greatest inventors had to lean on the body of work created before them.

2. “We pay an Australian based development agency to develop our product, but whilst the product management team are based in Australia, the backhouse team are based overseas…”

For software development, its location for R&D purposes usually means where the software developer is placed in the world when developing the code. This means that even if an Australian company hires the developer and they are an AUS resident for tax purposes, it would still be considered overseas R&D if they happened to be overseas at the time that they created it.

 This is an area that you need to be extra careful of when employing software development contractors who may employ overseas developers or outsource development overseas since overseas R&D is generally not claimable for software development. 

3. “Me and my tech co-founders spent a lot of time on developing the project, what can we claim in respect of this?”

As founders holding equity in the company, you would be classed as ‘associates’ under the current legislation. This means that to claim anything, you should be paying wages from the company to yourself with actual cash payments.

Furthermore these wages should all be paid before 30 June if you are to make the claim for that financial year.

This is an important matter which is often overlooked by founders in their first year of operation – don’t fall for the same mistake. 

4. “Some of our expenses were paid personally, what can we claim here?”

 Again, perhaps the second biggest pitfall for new entrepreneurs is to spend thousands on R&D without a corporate structure in place. Whilst it may be super easy to begin testing the waters for your potential business success without a company, you’ll also have next to no platform to make an R&D claim. R&D expenditures in partnerships also don’t count. Expenses could potentially be claimed under a trust structure in very limited circumstances.

5. “What the difference between a project, a core R&D activity and a supporting activity?”

 Perhaps a simple example to illustrate the differences:

  • Project: The overall product being developed or improved upon – i.e. creating the Tesla Model X.
  • Core R&D Activity: Within a project, there are a plenty of different activities taking place – admin, marketing, etc. What we are interested in are the research & development activities leading to innovative new features, i.e. developing the geo-sensitive auto-lock system.
  • Supporting Activity: Basically most activities in support of the above core R&D activity, i.e. testing the geo-sensitive auto-lock system.

At Fullstack, we help business owners steer past the regular financial pitfalls to success for their venture. One of our primary offerings is a streamlined R&D Tax Incentive application process with only successful applications to date.

If you have any questions or want to kick off the grant process, book a time with one of our seasoned R&D grants team today on 1300 887 627 or with calendly.com/fullstack.

Author Bio

This is a guest post by Stuart Reynolds, partner at Fullstack Advisory, and edited by Zegal.

Scaling an early stage venture requires incoming cashflow and measured control of the finances. That’s where Fullstack excels. Our progressive suite of accounting, R&D Tax Incentive, VCFO and financial modelling services steer your venture towards investor readiness with industry best knowledge and financial insight. We’re interested in your venture taking on the world – join the Fullstack Community and accelerate your business growth with our expertise.

The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

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