It’s been nine months since the introduction of the new R&D tax credits, yet it appears a lot of small businesses are struggling to grasp the concessions on offer.
The new tax credit has replaced the early 90’s tax concession that saw R&D expenditure boom in Australia. The problem is that a lack of transparency and a narrowed definition of what exactly qualifies as ‘R&D’ appear to have hampered the innovative efforts of small business.
The aim of the changes to R&D tax concessions was to divert funds to small and medium size businesses by allowing them to claim payments even when they’re operating at a loss. However according to accountants hearing the problems of SME’s, there is still a lot of uncertainty around the new reforms.
“They have done the R&D and spent the money. At the moment there is uncertainty over what they can claim.” KPMG tax partner David Gelb says.
Industry Minister Greg Combet has rejected suggestions that there are insufficient guidelines available for businesses to plan for the new tax. However a spokesman for Mr Combet’s department confirmed that an application form for the credit would not be available to claimants until May.
Serg Duchini, R&D partner at Deloitte, is highly critical of the absence of such basic documentation.
“That sort of stuff should have been out in the first six months to allow business to digest it, make some changes to their business processes so they can take advantage of the credit by the time they lodge their return for the first year.” Mr Duchini says.
The new R&D tax laws allow businesses with turnover of under $20 million to make a claim, up from $5 million. However it’s the narrowed basic definition of ‘R&D’ that has caused the most controversy, as well as ‘feedstock’ and ‘dominant purpose’ provisions that mean a lot of manufacturing and mining work is now excluded.
To clarify, the new legislation defines core R&D activities as ‘experimental activities whose outcome cannot be known or determined in advance’ that are to be determined by ‘applying a systematic progression of work that is based on principles of established science’ and are conducted for the purpose of generating new knowledge.
Businesses are expected to document appropriate evidence to substantiate any claim of R&D activities that they believe satisfy this new definition.
“The R&D definition has been changed to better target activities that are more likely to deliver benefits to the broader economy, and that would not have happened in the absence of the incentive.” Mr Combet says of the changes.
Mr Combet believes the change to double the available tax incentive to 15c for each dollar spent on R&D will be a huge benefit to SME’s.
However, while there may well be some great benefits to the tax reform, if the process is not transparent then there is a risk of actually inhibiting domestic R&D activity.
R&D adviser Michael Lynch, managing director of BSO Innovation, has already seen the negative impact the lack of clarity is causing industry. “Some of the larger companies we do work for are saying maybe we just buy overseas designs rather than do the full design process here.” Lynch says.
In an economy so urgently looking to diversify away from its dependency on resources and into intellectual enterprise, this is a very concerning confusion.
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