Archivision Conference R&D Tax Concession Presentation July 2010 Archivision Conference R&D Tax Concession Presentation Amanda Hocking, Partner PricewaterhouseCoopers Adelaide PwC

Today’s Agenda Overview of the R&D Regime July 2010 Today’s Agenda Overview of the R&D Regime How does R&D apply to the architecture industry? Methodology for making an R&D claim

Overview of the R&D Tax Concession July 2010 Overview of the R&D Tax Concession

Overview of the R&D Tax Concession A self assessing, entitlement-based government concession Jointly administered by Innovation Australia and the Australian Taxation Office Enables eligible companies to claim a basic deduction of 125% which is equivalent to 7.5c per $1 spent on R&D activities No claim 125% Base R&D Benefit 30c 30c Net Cost to Company 62.5c 62.5c Normal Tax Benefit 70c 7.5c

Overview of the R&D Tax Credit July 2010 Overview of the R&D Tax Credit In the May 2009 budget, the Commonwealth government announced its Powering Ideas platform, which included replacing the existing R&D Tax Concession with an R&D Tax Credit. The Federal Government has tabled new legislation dealing with the R&D Tax Credit, but this did not pass through the Senate in its June sitting. Two core components (increasing the base benefit) a 40% non-refundable R&D tax offset (equivalent to 10c in the dollar net cash benefit) a 45% refundable R&D tax offset if R&D entity’s aggregated turnover is less than $20 million (equivalent to 15c in the dollar net cash benefit)

What is Eligible R&D? – “Tax R&D” Under the R&D Tax Concession: SIE activities The activities must be undertaken in a systematic, investigative and experimental manner They must contain elements of innovation or high levels of technical risk They must be conducted for the purpose of acquiring new knowledge or creating new or improved materials, products, devices, processes or services Directly related activities Other activities carried on for “a” purpose directly related to the SIE activities

What is Eligible R&D? – “Tax R&D” Under the R&D Tax Credit: Core R&D activities are experimental activities: whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: is based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and that are conducted for the purpose of generating new knowledge (including knowledge about the creation of new or improved materials, products, devices, processes or services)

What does “innovation” mean? Activities are innovative if they involve an appreciable degree of novelty. Innovation may be present where: The work is seeking previously undiscovered phenomena, structures or relationships The work is attempting to apply existing knowledge or techniques or technology in a new or different way The outcomes are likely to benefit more than one organisation In the architecture industry this could include: Environmentally sustainable design (achieving AGBR and Green Star ratings) Façade design and complexities associated with other floor plate considerations

What does “technical risk” mean? Technical risk addresses the principle of uncertainty. Accordingly, high levels of technical risk may be present where: It is uncertain which technical option may yield the desired outcome Whether the technical objective will be achieved The methodology to success is unknown in advance There is a risk of failure In the architecture industry this could include: Technical challenges in the design of structural and functional design elements Complexities in the integration of various design elements to the clients overall requirements Interaction of geotechnical considerations within broader design constraints Trialling and testing of proposed designs or solutions, and making modifications as required

R&D Plan Documentation Requirements July 2010 R&D Plan Documentation Requirements To claim the R&D Tax Concession, companies must have R&D Plans in place Part A – R&D Plan Authorisation A list of all R&D projects proposed to be undertaken including an overview of the company’s strategic business objectives and a signed statement of approval Part B – R&D Project Plans State the technical objective of the project and the background of the technical gap or problem to be overcome by the project and the nature of the technical risk or innovation A company can refer to, and use, existing project documentation

R&D Application & Expenditure To claim the R&D Tax Concession, companies must lodge an R&D Application with AusIndustry within 10 months of the financial year end Types of Expenditure that can be claimed Salary Plant depreciation and plant leasing Contractors Other – Expenditure “directly” related to carrying on the R&D activities, including a portion of overheads

How does R&D relate to the architecture industry? July 2010 How does R&D relate to the architecture industry?

R&D Projects Indicators of R&D projects in the architecture industry The design and development of novel structures integrating many design elements, such as: Incorporation of Evidence-based Design (EBD) in the overarching design and construction World class facilities – unique design (e.g. sports grounds) Stimulating environments Sustainable development – integrating efficient and ecologically sustainable use of resources and energy Combining multiple buildings of synergistic sizes and scale to create a new space Special vibration, acoustic and lighting considerations Occupational health and safety considerations Security and accessibility issues And many more…..

R&D Activities Typically, R&D activities include: Project identification and initiation Conceptualisation Design and Development Testing and trialling Post-trial modifications and enhancements Conclusion of the project Examples of R&D activities relating to the architecture industry: Brief and schematic design Design development Preparation of construction documentation Contract administration

Methodology for making an R&D claim July 2010 Methodology for making an R&D claim

R&D Methodology PwC have a proven methodology for undertaking R&D tax concession claims Our overall approach is outlined below: Identify and scope eligible R&D Step 1 Review & prepare R&D Project Plans and supporting documentation Step 2 Preparation & lodgement of R&D Tax Concession Application Step 3 Identify eligible expenditure & preparation of documentation Step 4 Debrief & recommend modifications to existing processes Step 5