How the R&D Tax Incentive Can Help Your Business

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How the R&D Tax Incentive Can Help Your Business

Is your mind buzzing with new product, process or service ideas? Innovation is the key to economic growth and a better quality of life for all Australians. However, it comes at a cost. Industry leaks also make it impossible for innovators to benefit from their own inventions.

Innovate without fear when you claim the R&D tax incentive (RDTI). The Australian government encourages businesses to conduct research and drive innovation by offering a tax offset of up to $4 million covering the costs of project development.

Success Stories

Over 12,000 Australian businesses, mostly SMEs, have access to the program. Some of the companies to have benefited from this program include:

  • Orange-based Agline Distributors developed a range of technologies that conserve water, minimise soil disturbance, and boost agricultural yields and profits.

Agline applied for the R&D program in 2005, with General Manager Ross Hubbard patenting and selling Moisture Manager utilising an R&D investment of over $10 million. The award-winning machine serves both as a planting device and broad acre field cultivator. Hubbard sold the rights to Moisture Manager in 2014 to give other farmers access to the technology.

  • Bugs for Bugs specializes in Integrated Pest Management (IPM) and is currently developing biological and non-toxic alternatives to synthetic pesticides, helping Australian farmers use best practices when it comes to pest management.

Company Founder and Co-Director Dan Papacek states that RDTI allowed him to hire 25% to 30% more researchers with extensive skill, and having additional staff meant that the company could channel more of its time towards R&D activities.

  • Queensland company Capilano Honey made use of RDTI by developing alternative packaging options in the form of an upside down self-sealing bottle that prevents product waste and spillage. Government support has also allowed them to improve business efficacy, product sustainability, and quality control.
  • Subiaco geo-sciences company DownUnder GeoSolutions (DUG) was founded in 2003 and began accessing the RDTI programme in its early years. DUG invested heavily in R&D activities, which gave way to innovative software such as petrophysics, geostatistical depth conversion, seismic data processing, quantitative interpretation, and more to aid clients in the oil and gas industry during the exploration process.

These are just a few examples of real companies that have made the most of RDTI. The government offers the incentive across industries as long as they qualify for the program, that is, that they must be registered as an R&D entity and have incurred eligible notional deductions of a minimum of $20,000 on legitimate and well-documented R&D activities.

Visit the Australian Taxation Office (ATO) for more details on eligibility.

New Guidelines

In early 2019, AusIndustry released its newest guidelines for RDTI, which covers software companies and other entities participating in software development from concerns that software claims from companies were often too broad.

The 16-page document includes a clearer definition of the kind of research and development that qualifies for RDTI. Under the new guidelines, eligible R&D activities “must be experimental”, as well as “seek answers to problems that cannot be known or determined in advance on the basis of current knowledge, information or experience”. Click here to view the outline.

The new guidelines also provide definitions for what the program allows as experiments, hypotheses, and new knowledge.

Moreover, the following activities are no longer eligible for the program as core activities:

  • Bug testing
  • Beta testing
  • Data mapping
  • Business application software and information systems development via known methods
  • Product customisation
  • Routine software-related development activities

The document refers to the Frascati Manual, which provides examples of software development activities that may classify as R&D activities. The manual takes the stance that activities are considered R&D when they cover scientific and technological advances that bring about an increase in valuable stock knowledge.

Examples include:

  • Projects that develop new operating systems (OS) or languages
  • The development of new search engines using original technologies
  • Efforts to resolve conflicts within software or hardware by means of re-engineering a whole system or network
  • The creation of new or additional efficient algorithms using new approaches or techniques
  • The production of original and ground-breaking security or encryption techniques

If your activities don’t count as R&D under the new guidelines, don’t worry – Pattens can help you find other government grants and program that you may be eligible for. Talk to our grants consultants today to find out which grants to apply for.

By | 2019-10-23T12:53:23+11:00 October 23rd, 2019|Innovation and R&D Grants, Small Business|Comments Off on How the R&D Tax Incentive Can Help Your Business

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